Earnings call transcript: Reinsurance Group Q2 2025 misses expectations

Reinsurance Group of America (RGA) reported its Q2 2025 earnings, revealing a significant miss on both earnings per share (EPS) and revenue compared to market forecasts. The company posted an EPS of $4.72, falling short of the anticipated $5.56, marking a surprise of -15.11%. Revenue came in at 5.6 billion, slightly below the forecasted 5.67 billion, resulting in a -1.23% surprise. Following these results, RGA’s stock experienced a sharp decline, dropping 11.2% to $170.89 in after-hours trading, reflecting investor disappointment. According to InvestingPro analysis, the stock appears undervalued at current levels, with analysts maintaining an average price target of $284, suggesting significant upside potential.

Key Takeaways

• RGA’s Q2 2025 EPS and revenue both missed forecasts, with a significant EPS shortfall.
• The stock price fell by 11.2% in after-hours trading, signaling negative market sentiment.
• Large claims volatility in U.S. Individual Life and Healthcare Excess business impacted results.
• Strong growth in consolidated net premiums, up 14% year-over-year.
• Continued focus on strategic initiatives, including the "Creation Re" strategy.

Company Performance

Reinsurance Group of America faced a challenging quarter, with its financial performance hampered by unexpected claims volatility in its U.S. Individual Life and Healthcare Excess business segments. Despite these setbacks, the company reported a 14% increase in consolidated net premiums year-over-year, reflecting robust growth in its core operations. However, the EPS miss represents a deviation from the company’s previous trend of meeting or exceeding market expectations.

Financial Highlights

• Revenue: 5.6 billion, down from the forecasted 5.67 billion.
• Earnings per share: $4.72, below the expected $5.56.
• Adjusted Operating Return on Equity: 14.3% over the trailing 12 months.
• Excess Capital: 3.8 billion, with deployable capital at 3.4 billion.

Earnings vs. Forecast

RGA’s Q2 2025 earnings report showed a notable gap between actual and forecasted figures. The EPS miss of -15.11% was significant, considering the company’s past performance. The revenue shortfall of -1.23%, although less pronounced, further contributed to the negative market reaction.

Market Reaction

Following the earnings announcement, RGA’s stock price fell by 11.2% in after-hours trading, closing at $170.89. This decline comes as a reaction to the disappointing earnings results, with investors expressing concern over the company’s ability to manage large claims volatility. The stock’s movement contrasts with broader market trends, highlighting specific investor apprehensions regarding RGA’s performance.

Outlook & Guidance

Looking forward, RGA remains optimistic about its strategic initiatives and financial targets. The company anticipates contributions from the Equitable transaction, expecting approximately $70 million in pretax operating income in 2025, with further increases projected in subsequent years. RGA continues to target a 20-30% total shareholder return through dividends and share repurchases.

Executive Commentary

Tony Chang, President and CEO, emphasized the company’s commitment to raising its return on equity and EPS growth, stating, "Our job from an investor perspective is to raise the ROE, keep pushing towards raising ROE and keep pushing towards EPS growth." CFO Axel Andre added, "We’re very confident about our targets and we would not be changing our run rates expectations based on one or two quarters worth of volatility."

Risks and Challenges

• Claims volatility in the U.S. Individual Life and Healthcare Excess business remains a concern.
• Regulatory changes could impact RGA’s financial solutions in Asia.
• Market saturation in key segments may limit growth opportunities.
• Macroeconomic pressures could affect investment income and portfolio yields.

Q&A

During the earnings call, analysts inquired about the volatility in U.S. Individual Life claims and the company’s strategy for addressing healthcare claims challenges. RGA executives clarified their approach to capital deployment and shareholder returns, reinforcing their confidence in the company’s long-term targets.

Full transcript - Reinsurance Group of America Inc (RGA) Q2 2025:

Conference Operator: Good morning and welcome to the Reinsurance Group of America Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2.

Please note this event is being recorded. I would now like to turn the conference over to Jeff Hopson, Senior Vice President, Investor Relations. Please go ahead.

Jeff Hopson, Senior Vice President, Investor Relations, Reinsurance Group of America (RGA): Thank you. Welcome to RGA’s second quarter twenty twenty five conference call. I’m joined on the call this morning with Tony Chang, RGA’s President and CEO Axel Andre, Chief Financial Officer Leslie Barbie, Chief Investment Officer and Jonathan Porter, Chief Risk Officer. A quick reminder before we get started regarding forward looking information and non GAAP financial measures. Some of our comments or answers 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 from expected results. Additionally, during the course of this call, the information we provide may include non GAAP financial measures. Please see our earnings release, earnings presentation and quarterly financial supplement, all of which are posted on our website for discussion of these terms and reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which again is posted on our website.

And now, I’ll turn the call over to Tony for his comments.

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Good morning, everyone, and thank you for joining our call. Last night, we reported operating EPS of $4.72 per share. Our adjusted operating return on equity for the trailing 12 excluding notable items was 14.3%, which is in line with our intermediate term targets. The operating results were below expectations due to large claims volatility in U. S.

Individual Life and unfavorable claims in our Healthcare Excess business, which is one of our four business lines within U. S. Group. The U. S.

Individual experience reflected a higher level of large claims that offset the favorable experience in Q1. For the year, we are in line with expectations and our forward looking views have not changed. On the U. S. Group Healthcare Excess business, claims were unfavorable consistent with the trends in the market as seen by the experience of other health companies.

This is short term business, the vast majority of which will be repriced by January 2026. At a more strategic level, RGA has achieved one of our best quarters yet in terms of delivering tangible successes. Firstly, during the quarter, there was a significant increase in our excess and deployable capital measures. This will give us considerably more flexibility going forward to fund not only our strong growth, but also return capital to shareholders in the form of dividends and share repurchases. Secondly, our business momentum remains very strong in both our financial solutions and traditional businesses.

I am delighted with the closing of the Equitable transaction as we announced yesterday. This transaction has an effective date of April 1. This start date was mutually agreed with Equitable as the experience on the block in Q2 was in line with our expectations. It is not just in The U. S.

That we continue to be a market leader in the asset intensive business. We are having tremendous success in this business line across the globe. I believe this quarter was the first time in our history we have won asset intensive transactions in five different countries across three continents. This shows the power of RJ’s global platform. In the traditional space, for the first six months of the year, our premiums rose by a strong 11% on a constant currency basis, while maintaining our robust margins by delivering unique and customized solutions.

Whether in the traditional or financial solution space, the nature of our solutions do vary around the world. But what is consistent throughout and what drives this business momentum is our focus on creation REIT. This focus allows us to continue to exceed our targets in terms of the percentage of business coming from exclusive arrangements. This increases our pricing returns as we create greater value for RJ and our clients. As you know, Creation Re is about our ability to create innovative solutions.

It is also about our ability to maintain our strong risk discipline. We speak a fair amount about the business we do win, but as instructive is information about the blocks we do not pursue. This quarter, there were several high profile brokered transactions in The U. S. We chose not to participate in.

These transactions did not fit within our sweet spot and risk appetite. Our global platform allows us the flexibility to selectively pursue the business we like around the world. Thirdly, another area of strategic success is the continued build out of our comprehensive asset management platform, both in terms of the breadth and depth of capabilities. Our investment results were strong this quarter. The earned rate on the portfolio increased due to the strong variable investment income and higher new money rate.

Our efforts over the past year to identify and act on repositioning some existing investments also supported these results. Our success is due to our prudent long term approach to asset management. We build portfolios to weather the entirety of the investment cycle and have delivered strong returns while remaining well matched to our liability profile. I will now provide more specific details on some of our new business activities in the quarter focused on our four areas of notable growth. In Asia Traditional, we had a robust quarter in terms of new treaties with all markets performing well.

Our Hong Kong operations continue to shine in a market that showed a 43% increase in life insurance sales for the first quarter to a record high. In Taiwan, which is one of our strongest markets, we have been active in the senior market. Currently, there are six clients in the market offering 14 senior products all supported by RGA. Finally, in Korea, we continue to have success in the upgrade cycle relating to the next generation of critical illness products. As you can see, each new product development not only leads to greater business within that market, but also adds to our library of solutions that we then redeploy across Asia and across the globe.

Moving to Asia Financial Solutions, our second area of notable growth. We closed several transactions in Japan, Korea and Hong Kong. We continue to see regulatory changes as a key tailwind in these and other markets. While the large marquee transactions get the headlines, we also value these more frequent, modest sized flow or block transactions that are often completed without an intense bidding process. RJ with its many touch points and long standing relationships is best positioned to provide these differentiated and more tailored solutions to our clients.

Our third area of notable growth is the longevity in the PRT market. In The UK, we had a very active quarter as we closed a number of attractive transactions. We are on pace to meet our targets for new business and believe we are the clear market leader. The highlight of the quarter in The UK was an asset intensive transaction with a new client. We partnered to develop a tailored solution made possible because of RJ’s strong ratings, reputation and execution certainty.

In The U. S. PRT market, we are encouraged by the increase in activity at the jumbo end of the market. Given our business pipeline, we expect a pickup in activity in the second half of the year. In The U.

S. Traditional area, our fourth area of notable growth, we had strong new business, most of which was related to our underwriting initiatives. It was a record quarter for individual underwriting cases and we made inroads towards full underwriting outsourcing with a few important clients. Additionally, our broad array of underwriting services was the primary driver of us winning a leading share in many transactions. This included one in force transaction where the client increased our share due to the services we provide.

When you combine our underwriting and product development services with our partners that provide distribution technology and other services, further coupled with our ability to reinsure both sides of the balance sheet, you can see why we continue to bring holistic solutions generating exclusive business for RGA. Putting it all together, I am very pleased with our continued success in providing significant value to RGA and our clients through our creation re efforts. When combined with our balance sheet optimization on the capital side, in force actions, investment portfolio repositioning and other management levers, we expect to be successful in driving improved returns for shareholders and therefore a tailwind to our current ROE. We remain confident about the future of our business prospects as RJ is well positioned in its markets and we have a proven successful strategy that has stood the test of time. I will now turn it over to our CFO, Axel Andre, to discuss the financial results in more detail.

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Thanks, Tony. RGA reported pretax adjusted operating income of $421,000,000 for the quarter or $4.72 per share after tax. For the trailing twelve months, adjusted operating return on equity excluding notable items was 14.3%. After a strong first quarter, this quarter’s results were below expectations driven primarily by claims volatility in U. S.

Individual Life and unfavorable claims in one of the businesses within U. S. Group, which I’ll expand on shortly. Aside from the financial results, we have made good progress on several strategic initiatives in the quarter, including materially improving our capital position. As a result of further balance sheet optimization and the recognition of the additional value of in force business in certain capital models, our excess capital increased to $3,800,000,000 at the end of Q2.

Pro form a for the Equitable transaction, which I’ll discuss in more detail, excess capital was $2,300,000,000 Similarly, our deployable capital increased to $3,400,000,000 at the end of the quarter. During the period, we deployed two seventy six million dollars into in force transactions. Our non spread portfolio yield, excluding variable investment income was 4.98% in Q2, up eight basis points from the first quarter. Total variable investment income was strong at $105,000,000 significantly higher than last quarter and now favorable for the year. The results were primarily due to realizations in our limited partnerships and real estate joint venture sales.

The effective tax rate for the quarter was 25.2% on adjusted operating income before taxes, above the expected range of 23% to 24%, primarily due to the establishment of valuation allowances on foreign tax credits. We are still expecting a tax rate of 23% to 24% for the full year. Yesterday, we announced the closing of the previously discussed transaction with Equitable. I would like to provide additional details regarding certain closing terms. The transaction is effective April 1, which was mutually agreed versus an alternative of July 1.

When reviewing the Q2 claims experience and overall results on the assumed block, we found it to be in line with our expectations and thus found it beneficial to accept an earlier effective date. Our review of the experience also helped affirm the reasonableness of our actuarial and pricing assumptions. Although it’s effective April 1, we would only report six months of earnings in our 2025 GAAP results. The Q2 earnings on the block are estimated to be $30,000,000 in line with our expectations and these will be deferred and amortized into earnings over the life of the transaction. For the 2025, we still expect pretax operating income contributions of approximately $70,000,000 increasing to 160,000,000 to $170,000,000 in 2026 and approximately $200,000,000 per year by 2027.

Turning to biometric claims experience, as outlined on Slide eight of our earnings presentation. This displays the total company claims experience and the related financial statement impacts on a quarterly basis. As mentioned earlier, claims experience was unfavorable in the quarter, primarily driven by The U. S. Traditional segment.

For the company, economic claims experience was lower than expected by $256,000,000 with a corresponding $158,000,000 unfavorable current period financial impact. Claims experience was unfavorable in U. S. Individual Life, primarily due to higher large claims, offsetting the favorable experience from Q1. For the year, the economic claims experience for U.

S. Individual Life is broadly in line with expectations. The current period financial impact was significant due to the proportion of claims in capped cohorts. Claims in U. S.

Group were also higher than expected, driven by our Healthcare Access business, consistent with recent industry trends. Other lines within U. S. Group performed in line with expectations. We think that the current challenges within the Healthcare Access block can be remediated in a reasonable timeframe given its short tail and our ability to reprice quickly and modify underwriting.

We have already begun taking pricing action and expect that the majority of the block will be repriced by January 2026. Looking at the second half of the year, our assumption is that the group business overall will be approximately breakeven versus an expectation of $20,000,000 to $30,000,000 for the remainder of the year. We expect to see improvement in the results as we move through 2026. Claims in Canada and EMEA were modestly unfavorable, while APAC experience was favorable. As we’ve seen in the first two quarters, volatility on a quarterly basis, both positive and negative, is normal and does not necessarily include a material trend.

As shown on Page eight of our presentation, on a longer term basis, economic claims experience for the total company has been favorable by $272,000,000 since the 2023 when we fully emerged, more fully emerged from COVID. U. S. Individual life represents approximately $75,000,000 of this favorable experience. As a reminder, the favorable economic experience that has not been recognized through the accounting results will be recognized over the remaining life of the business.

As a result of our substantial new business activity year to date, the value of in force business margins totaled $41,000,000,000 at the end of the quarter, an increase of approximately $4,000,000,000 year to date, with approximately $2,000,000,000 coming from new business. This excludes the impact of the Equitable transaction, which will be included in our Q3 results. We will provide a more detailed update on the value of in force business margins with our Q3 results. For the year, consolidated net premiums were up 14% year over year when adjusted for the impacts from U. S.

PRT transactions, which can cause premiums to fluctuate. Our traditional business premium growth was 11% year to date on a constant currency basis, which has benefited from strong growth in The U. S, EMEA and Asia. Premiums are a good indicator of the ongoing strength of our traditional business, and we continue to have strong momentum across our regions. Turning now to capital.

Our excess capital increased to an estimated $3,800,000,000 at the end of Q2 or $2,300,000,000 pro form a for the Equitable transaction. The increase is primarily due to the recognition within certain capital frameworks of additional value of in force credits related to business already on our books. We recently satisfied the strict external requirements needed to include these balances in our capital metrics. Note that excess capital considers our three main capital lenses corresponding to RGA’s internal economic capital model, local regulatory capital across our main legal entities and rating agency capital methodologies. Our deployable capital at Q2 increased to an estimated $3,400,000,000 due to similar reasons I just highlighted.

As a quick reminder, this measure represents management’s estimates of the capital available to be deployed into transactions or returned to shareholders over the next twelve months, taking into account estimated capital sources and committed uses over that forward looking twelve month period, including the impact of the Equitable transaction. Our strong balance sheet, capital management toolkit and current levels of excess and deployable capital position us well to continue to support an attractive new business pipeline with existing capital. We will balance the deployment into the business with returning capital to shareholders through quarterly dividends, which we just increased 4.5% to $0.93 per share and share repurchases. Regarding share repurchases, our intention in the short to intermediate term is to be active, but opportunistic quarter by quarter, depending on our capital position, a forward view of our transaction pipeline, as well as valuation metrics. Over the longer term, we would expect total shareholder return of capital through dividends and share repurchases to range between 20% to 30% of after tax operating earnings on average, consistent with our long term history.

Moving to the quarterly segment results on Slide six. The U. S. And Latin America Traditional results reflected unfavorable claims experience as previously discussed. For the year, the economic claims experience in U.

S. Individual Life is broadly in line with expectations. The U. S. Financial Solutions results were higher than expected due to higher variable investment income and higher investment yields.

As a reminder, the Equitable transaction will be recorded within this segment. Canada Traditional results reflected modestly unfavorable group results and individual life claims experience. The Financial Solutions results reflected favorable longevity experience. In the Europe, Middle East and Africa region, the traditional results reflected unfavorable claims experience, partially offset by favorable other experience. EMEA’s Financial Solutions results were above expectations, reflecting favorable longevity experience, higher variable investment income and higher investment margins due to ongoing growth.

Turning to our Asia Pacific region. The traditional results were good, reflecting favorable claims experience across the region. Financial Solutions results were favorable, primarily due to higher variable investment income and ongoing growth of the business. Finally, the Corporate and Other segments reported an adjusted operating loss before tax of $32,000,000 favorable compared to the expected quarterly average run rate. This was primarily due to higher variable investment income.

Moving to investments on Slides nine through 12. The non spread book yield, excluding variable investment income rose to 4.98%, primarily due to higher new money rates, which increased to 6.53% and remain well above the portfolio yield. The total non spread portfolio yield for the quarter was 5.31%, up from last quarter, reflecting higher variable investment income and higher new money rates. Variable investment income was strong for the period, driven by increased realizations in limited partnerships and real estate joint venture sales. I’ll note that we still hold an above average level of cash opportunistically over the coming quarters.

Importantly, portfolio quality remains high and credit impairments are in line with expectations for the year, and we believe the portfolio remains well positioned. During the quarter, we continued our long track record of increasing book value per share. As shown on Slide 16, our book value per share excluding AOCI and impacts from B36 embedded derivatives increased to $156.63 which represents a compounded annual growth rate of 9.7% since the 2021. To summarize, following a strong first quarter, this quarter’s results were impacted by claims experience in our U. S.

Traditional segment. Importantly, we continue to advance many strategic objectives. Our long term strategy remains well on track and we are confident in our ability to deliver on our intermediate term financial targets. We continue to see good opportunities across our geographies and business lines and remain well capitalized to execute on our strategic plan. We also believe we are in a position to return excess capital to shareholders through dividends and share repurchases.

With that, I would like to thank everyone for your continued interest in RGA. This concludes our prepared remarks. We would now like to open it up for questions.

Conference Operator: We will now begin the question and answer session. Our first question today comes from John Barnidge with Piper Sandler. Please go ahead.

John Barnidge, Analyst, Piper Sandler: Good morning. Thank you for the opportunity. Can you talk a little bit more about the additional credit you got on the LifeBlock? I know it was a bit probably a very thorough analysis across markets and products. What changes were made and did you are you making an assumption for an improvement in obesity epidemic because of GLP-one drug?

Thank you.

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Hi, John. Thank you for the question. We’re very pleased, obviously, with the value of in force credits that we’ve received in our capital model. As you correctly pointed out, this was the result of a lot of work over a long period of time. And this really represents capturing within available capital models some portion of the large embedded value in our business, given the long term nature of our cash flows and the long term embedded underwriting margins in our business.

This is really a reflection of the current book of business with current assumptions and does not reflect any change in our actuarial assumptions at this point.

John Barnidge, Analyst, Piper Sandler: Are you considering incorporating that with the third quarter actuarial assumption review as my follow-up? Thank you.

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): So it is too early to be talking about the third quarter actual assumptions work. This work is still ongoing and we will be discussing that on the next quarter’s earnings call.

Conference Operator: The next question is from Joel Hurwitz with Dowling Partners. Please go ahead.

Joel Hurwitz, Analyst, Dowling Partners: Hey, good morning. Can you just unpack the individual life experience in the quarter? Was there some significant lag effect from Q1? And or was there any impact from you guys increasing retentions at the beginning of the year?

Jonathan Porter, Chief Risk Officer, Reinsurance Group of America (RGA): Yes. Hi, Joel. Thanks for the question. This is Jonathan. When we review claims experience, focus on longer time periods before drawing conclusions on trends, positive or negative, because underlying results can be more variable when you look at any one quarter, any one market.

So in that context, we’re very pleased with our overall biometric experience, as Axel talked about in his remarks. Q1 of this year, we had very positive results in our U. S. Individual line of business due to large claims volatility being favorable. Q2, we saw the same thing but in the opposite direction.

So on a year to date basis, results for U. S. Individual are broadly in line with our expectations. The total number of large claims we get in any one quarter is less than 200, so a small change in count or average size can create fluctuations in the experience, and that’s really what we saw in Q2. We had a slightly elevated frequency of large claims, so more or less in line with expectations, a little bit higher.

But it was really the materiality or the severity of the claims or the average claim size that was higher. I’d characterize the magnitude of the large claims volatility that we’ve seen in Q1 and Q2 as unusual. I wouldn’t expect it to continue at that level on a regular basis. And again, given things are broadly in line on a year to date basis, there’s nothing from a trend perspective that we’re concerned about at this point.

Joel Hurwitz, Analyst, Dowling Partners: Okay, got it. And then, Axel, going back to the $2,000,000,000 value of in force credit, can you just unpack that process a little more for me and sort of what rating agency and regulators were involved? I guess just in your deck, talk about the binding capital framework can change. Was there a change? And then just what would cause that to change?

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Yes. Thank you for the question. So you’re correct to point out that our capital metrics, whether it’s excess capital or deployable capital, consider the three main capital lenses that we evaluate capital on. And that’s, of course, RGA’s internal economic capital model, It’s the local regulatory capital across legal entities and rating agency capital models. You’re correct to point out that at times we’ve talked about how the binding constraint between these three frameworks is what determines for us the excess or the deployable capital.

In this case, value of in force is a process that we pursued with rating agencies. So it says that the rating agency capital framework was all biting constraints and that through this work, which is thorough, which requires third party review and thorough in process from the rating agency perspective, we now see this value of in force reflected in our model. We are now in a position where rating agency and regulatory capital are relatively comparable. And then lastly, I just want to point out that this value of in force recognition is the recognition for only a portion of our in force block and that there are further opportunities for further recognition down the line.

Conference Operator: The next question is from Elyse Greenspan with Wells Fargo. Please go ahead.

Elyse Greenspan, Analyst, Wells Fargo: Hi, thanks. Good morning. I was hoping you guys could talk more just about the health experience in the quarter and just thinking about future performance of the block. And then I know you guys touched on rate increases in the prepared remarks. Can you just give us a sense of just the magnitude and the expected impact there as well?

Jonathan Porter, Chief Risk Officer, Reinsurance Group of America (RGA): Hi, Elyse, this is Jonathan. I’ll take that question. So this is a line of business that we’ve been in for a significant period of time and we have quite a bit of expertise. It has also performed well over time and has been profitable even including the results that we’re seeing in this quarter. Our U.

Group business is comprised of four major lines. Three of those are performing as expected. The negative experience we’re seeing this quarter is our healthcare access line. And just to size that for you, it’s about 30% of our expected US group earnings, is about 3% of our US traditional earnings. The results this quarter are really driven by higher claims costs stemming from a variety of more expensive treatments, so things like specialty drugs, transplants, premature births, and some cancer therapies.

As Axel mentioned, the business is short term and annually repricable, which means we’re able to quickly address the experience variances in the business, and we do expect margins to improve going into 2026. The rate increases we have, as you mentioned in your question, we have already implemented rate increases so far this year on blocks that have already been renewed. Those amount of increases are significant. I don’t have an exact figure to give you, but they are material in what we’ve seen so far and expect that to continue.

Elyse Greenspan, Analyst, Wells Fargo: Thanks. And then my second question, I guess, is also just on the excess capital figure. You were talking about getting credit for part of the value in force. As we think about future deals that get done in the future, how should we think about you guys getting incremental credit there? Is it certain types of deals that would qualify for credit?

Do you talk to the rating agencies on a case by case basis? Could you just give us a sense for just future transactions and deployable capital credit that you could get?

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Yeah, thank you for the question, Liz. Yeah, so we have a long term track record of working with the rating agencies to obtain credit for value of in force. At times, in the past, it’s been in the context of the securitization of a block of business. But also at times, it doesn’t necessarily require that securitization. We have a process where there are certain portions of our business where we are receiving value of in force credit as we write new business because we have a well established process and understanding of the nature of the business.

And then for other portions of our in force business, we address it block by block, if you will. So we do expect that over time, we will be constantly looking at our balance sheet and looking for opportunities to create more value of in force recognition through the rating agency process.

Conference Operator: The next question is from Jimmy Bhullar with JPMorgan. Please go ahead.

Jimmy Bhullar, Analyst, JPMorgan: Hey, good morning. I had a couple of questions. One is on the health insurance business. Can you talk about the lag in your results versus what your clients are seeing? And the point of the question is that given that health insurance results have generally gotten worse in 2Q, should we assume that that flows through your results in the third quarter or the fourth quarter, so even though you’ll reprice part of the block, that things might actually get worse in the near term in terms of your results, and then maybe not improve until 2026?

And then secondly, on capital, I think you’re, based on what you’re saying in terms of your excess or deployable capital, that number is close to 30% of your market cap. Yet, if we look at most of the traditional metrics, like debt to cap or RBC, they really don’t imply that much excess capital, and similarly, if we look at your actions, despite a fairly low multiple, you guys haven’t really been buying back stock. Obviously, you have deployed capital into deals. So just the and excess capital, in my view, is more of an opinion than a fact anyway, but what are your priorities in terms of using that excess capital over the next year, two years or so? And are you more open to buying back stock than you’ve been in the past year or two years?

Thanks.

Jonathan Porter, Chief Risk Officer, Reinsurance Group of America (RGA): Yes, thanks Jimmy. This is Jonathan. I’ll take the first question. So with respect to the healthcare access and the claims lag, I mean, as a reinsurer, it’s possible we might see a little bit longer of a lag in reporting, but a couple of things on that. So we work very closely with our clients, obviously.

In fact, we provide service to our clients that help them better manage their claims expectations, and we have a successful track record of demonstrating that value historically as well. Also, these claims, because of the nature of them and them being large, they tend to be very known very quickly, so that also helps in addressing any potential lag situation. And then from the perspective of our actuarial liabilities, obviously, we’ve established reserves from a case perspective as well as IBNR to using our best estimate of what we believe the experience has been. So from that perspective, we feel we’re appropriately reserved at the end of the quarter.

Jimmy Bhullar, Analyst, JPMorgan: Okay. Thanks.

Tony Chang, President and CEO, Reinsurance Group of America (RGA): And Jimmy, let me start off, on the question around the capital. Look, as as I shared in my opening remarks, our business remains incredibly strong. And the business where the returns we’re seeing on the new business are a tailwind to the ROE guidance we’ve given of the 13% to 15%. Actually it ticked up this quarter just from an internal management report. So the business is as strong as ever.

Make no mistake, our job from an investor perspective is to, you know, raise the ROE, you know, keep pushing towards raising ROE and keep pushing towards EPS growth. So yeah. And we all obviously know that share repurchases is a very, very effective tool that can obviously cement essentially EPS growth and at the right price ROE accretion. So we’re really trying to balance those two strong forces absolutely as RJ traditionally and will continue to do is have a very balanced approach. And we are saying at this point in time that balance is 20% to 30% of our earnings as they’re returning to shareholders.

As I’m sure you’re fully aware, we have not bought back stock for the past six quarters. So it is important communication that we will commence considering buying back stock from this point forward. Axel, don’t know if there’s anything further to add, but I’ll pass it on to you if there is.

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Yes. No. I mean so I think first, I think with that point, so we’re very pleased to be in the capital position that we’re in. We have the flexibility with the capital that we have to deploy into the business to return capital to shareholders. As I mentioned, we expect to be with share buyback to be opportunistic quarter by quarter, but over the long term, think of a 20 to 30% payout ratio in terms of the total return through dividends and buyback to shareholders.

Again, varying quarter by quarter, but over the long term consistent with that, which is consistent with our long term history. On the capital point, I would remind you that we have multiple balance sheet, multiple legal entities across both US RBC framework, but also Bermuda framework in particular. So all of our capital metrics consider are really on a consolidated basis, looking at the totality of our balance sheet. They consider all of the frameworks, and they capture the binding constraints. So whatever is going to be most binding, including regulatory, is going to determine that number.

Jimmy Bhullar, Analyst, JPMorgan: Thank you.

Conference Operator: The next question is from Wilma Burdis with Raymond James. Please go ahead.

Wilma Burdis, Analyst, Raymond James: Hey, good morning. Do you think any of the higher costs you’re seeing in excess healthcare on more expensive but more effective treatments could eventually be offset by savings on claims in life down the line? Thanks.

Jonathan Porter, Chief Risk Officer, Reinsurance Group of America (RGA): Yeah, thanks Wilma. This is Jonathan. I think that’s a very valid point and that’s one of the things that excites us about the potential opportunities in the mortality space. And that’s also another reason why we pursued a diversification from a risk perspective position from the enterprise. So when we see potentially some stress or volatility going in a negative direction in one line of business, that can support positivity either in the current period or down the road in another line of business.

And that’s part of how we think about our mix of risks at the enterprise level.

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Yes. Well, let me just add. You for asking that question. We internally observe that. And we obviously, as an investment community, get focused on short term earnings.

But the long term impacts from the medical advances, as Jonathan mentioned, whether it’s GLP-one or other medical advances, expect to see in the future the short term earnings impact quite tremendously. So thank you for the question.

Wilma Burdis, Analyst, Raymond James: Second question, is RGA anywhere near its retention on the excess healthcare business? Just trying to assess, you know, I know a lot of those claims come in towards year end, so just trying to assess how confident you are in the remaining weakness there.

Jonathan Porter, Chief Risk Officer, Reinsurance Group of America (RGA): Hi, Wamsi. This is Jonathan again. As I mentioned before, I think the reserves we’ve established this quarter, which is driving the negative result, is our best estimate of where we expect the claims to come out for premium we’ve already recognized and earned through the income statement. The drag effect that Axel mentioned in his remarks is really additional reserves that we expect to establish as the premium is earned over the balance of the year. But at this point, we believe our reserves are appropriate for the business.

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Yes. I mean, it’s Tony here. Look, as we said, this is very short term business. In our comments, we’ve said the majority of which will be repriced by January. I think all of it gets repriced by the quarter after.

So it’s just that one January is the main renewal period. So it is a very self contained we’ve got actions in place, which AXA has already shared we’ve commenced for the July renewals, and we’re comfortable with the position.

Conference Operator: The next question is from Ryan Krueger with KBW. Please go ahead.

Jeff Hopson, Senior Vice President, Investor Relations, Reinsurance Group of America (RGA)0: Hey, thanks. Good morning. Just one more follow-up on the value in force credit. Did you actually have to do anything in regards to, you know, like borrowing against future in force value or anything like that? Or is this just more about getting the credit from the rating agencies through the process that you have to go through with them?

Just wanted to make sure I understood that.

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Yeah, hi Ryan, thank you for the question. It’s Axel. Yeah, no, in this case, this is really recognition of the value of in force that did not require or was not associated with an actual securitization or borrowing. Now, have that, of course, which means we have that still available to us should we find value in doing that in the future. But this was strictly from a rating agency process perspective.

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Ryan, maybe if you don’t mind me adding strategically, I mean, we talk a lot about our long term value or what do we call it, value of in force business margins, which is now at $41,000,000,000 That generates these opportunities. If you don’t have the embedded value in the company, you can’t do these things. As Axel said, it’s a question of us doing the work, focusing on doing the work, getting the satisfactory resources or necessary resources. In the past, that has not been a constraint to our business growth. It became a constraint, which we spent a lot of energy to rectify.

And yes, it takes external consultants to verify. Yes, it takes the ratings agency also to agree and kick it off. And it’s not uncommon. I mean, regulatory environments, I believe IFRS already allow for this credit in capital. So we’re really excited by what we’ve achieved and we believe there’s further blocks to come.

Jeff Hopson, Senior Vice President, Investor Relations, Reinsurance Group of America (RGA)0: Thank you. And then, Tony, you had mentioned some higher profile blocks in the market that you chose not to bid on during the quarter. Just curious, were those are you referring to deals that have already been announced? Or are you referring to deals that are in the market that where there haven’t been transactions yet?

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Yes. Thanks, Ryan. Look, that does refer to transactions that have occurred. I know there’s been some questions around the businesses that that we’ve taken, whether LTC or ULSG, type businesses. You know, I just wanna assure everyone there’s there’s there’s no intention whatsoever to increase the proportion, you know, of the company, in that direction.

So and the only way besides me continually saying that is look at the actions we take. So in the first quarter, there was a very material LTC block that came to market. We were not involved whatsoever. It just did not fit into our criteria of what we set for LTC, which is very strict and tight. And second quarter, there was a multitude of I think, some variable annuities, some ULSG.

Once again, not interested. We’ve got our global platform, right? We’ve got all these businesses around the world that we can do on an exclusive basis, and that’s where we obviously want to allocate the capital. That’s why we’re able to have a tailwind to our ROE through the pricing process, through the business we win. So some balance of business, but absolutely, our eyes are focused on just creating long term value.

And then as I said earlier, growth in EPS and ROE.

Conference Operator: The next question is from Suneet Kamath with Jefferies. Please go ahead.

Jeff Hopson, Senior Vice President, Investor Relations, Reinsurance Group of America (RGA)1: Great. Thanks. I did want to come back to the $2,000,000,000 of value in force credit. Can you just talk to the conservatism that’s built into that? Because to me, it sounds like this is another sort of assumption driven sort of number.

And if those assumptions end up being too aggressive, then maybe the $2,000,000,000 isn’t $2,000,000,000 And I just want to make sure we don’t run into an issue like that down the road as you continue to pursue this source of capital.

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Yeah, thank you, Suneet, for the question. Well, as I mentioned, it’s a very strict review process for reflecting value of INFORCE in the frameworks. So first of all, of course, it starts with our actuarial assumptions that are conservative and that are backed by long history and long term of data and the throw of information. But also, you only get partial credit for the value of in force. You only get, frankly, less than 50% credit for it.

So we feel very confident in the amount that is recognized through that framework. As I mentioned, again, it reviewed by third party as well as the raising agency process.

Jeff Hopson, Senior Vice President, Investor Relations, Reinsurance Group of America (RGA)1: Okay. And then I guess for Tony, if we just take a step back, you’ve raised the ROE target, you’ve raised the EPS growth target, you’re very bullish about the opportunity, but the stock’s multiple is lower than when the ROE target was lower and the growth was lower. And we can debate the reasons why, but I think one of them is there’s a view in the market that maybe this new strategy is going to add a lot of risk to the story relative to the RGA of old. And so I just wanted to give you an opportunity to comment on that because I think that’s perhaps a change in the way that people are thinking about your company and about your stock.

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Yeah. No. Thanks, Suneet, for the question. The RJ of old, you know, all I could really point to is is Asia. You know, that’s where you know, I was instrumental in running that business for twenty years, and this is exactly the approach we took.

Right? And what is that approach? It is approach of being proactive, innovative, finding things that can help our clients grow and and succeed. And therefore, you create greater value and you get to share it. So are we more aggressive?

We’re absolutely more aggressive in that approach, which I think is a more proactive approach. I I could argue a less risky approach in a sense because, you know, commoditized business is really long run, not conducive or probably will not allow us to meet our long term goals. And that’s not just Asia. Mean, we’ve had tremendous leadership throughout the organization and this is a culture that essentially has been established from day one where we were all around innovation, all around proactivity and solutions, providing our solutions. And it plays to our absolute sweet spot because we only do life and health risks.

So it’s sort of shame on us if we can’t be the best in doing that because we only focus on one thing, which is life and health risk. And we’ve made the investments around the world to have the talent out there. We’re obviously very proud of our team and this continues. So, the market’s going to do what the market’s going to do. Our job is to continue to grow the EPS and continue to raise the ROE, and we have faith that the market will be right in the medium to long term.

Conference Operator: The next question is from Tom Gallagher with Evercore ISI. Please go ahead.

Jeff Hopson, Senior Vice President, Investor Relations, Reinsurance Group of America (RGA): Good morning. One on just a follow-up on the $2,000,000,000 capital benefit from the value of in force. Is there a practical limitation to how much you could do, like the maximum? I assume you can’t go to 100% of equity capital or something like that. But when we think about two, I don’t know, would the limit be half of total actual equity from a credit profile sorry, from a credit you would get on capital?

Can you just give kind of the framework in terms of maybe the max you could go to theoretically? That’s the first question.

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Yeah, thank you for the question, Tom. Right, first let’s start with, as we discussed, we have a substantial embedded value of in force in our business. One of the lenses through which we look at that is the value of in force business margin. As I said, what is that? It’s the reflection of the long term embedded underwriting margins that are embedded in our business.

Now, you’re correct, from a rating agency perspective, there is a limit to the amount of value of in force credit that can be recognized. But another important thing to remember, so first of all, even relative to that limit, we think we still have upside opportunities to capture more value of in force with further in force blocks that we have on today’s balance sheet. But also, as I reminded you earlier, we have all three capital frameworks, economic capital, regulatory and rating agency. We’re now at a point where rating agency and regulatory are roughly equivalent. So further work from here would benefit from both getting further value of in force recognition, but also improving on regulatory side, which we have been able to do in the past through retrocession of business, for example, and other capital management tools that enable us to free up capital to redeploy into the business.

Jeff Hopson, Senior Vice President, Investor Relations, Reinsurance Group of America (RGA): Thank you for that. And then my follow-up is, Tony, it’s a question about, do you think something needs to change here? And the reason I ask you is because you had very favorable experience in Q1, the market didn’t reward you for the favorability, then you fully reverse it in 2Q and your stock gets pounded. So you seem to be getting only the downside of volatility, not the upside, unfortunately. So the reason I sort of set it up that way, is there anything you can do structurally here to improve the situation from a shareholder standpoint by limiting volatility somewhat?

I’ll throw out one idea. Would you entertain something like doing a retro cover with Ruby Ray, which could limit the level of volatility for RGA shareholders, but still give you skin in the game for the economics of that business because of your stake in Ruby Ray? I’m just trying to understand, I’m getting a lot of frustrated shareholders saying to me, what can be done here? Because they like your story, they really don’t like the level of volatility.

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Yeah. No. Thanks, Tom, for the clarity of the question. There are things we can do. Where the volatility usually happens is around the capped cohorts under LDTI.

Obviously, the other cohorts get smoothed out over the life. So, yeah, we could, in theory, retroceed those blocks of business, give up economic value as you suggest, you know, whether it’s Ruby or or some third party on an arm’s length. So we we we balance all of those considerations, but we’ve got finite resource. So, you know, the alternative to that could be, you know, price and create more business or other balance sheet optimization opportunities and so on. So, like I said, all we can share is the facts.

We’re running the business for the medium and long term. Year to date, experience has been pretty spot on for The U. S. Individual life over the last six quarters, I believe, or ten quarters, I can’t recall exactly. Since 02/2003, the experience has been strong.

And the market is going to do what the market is going to do, as you know, as well as I. So we’ll keep running it for the right economics, for the right EPS and ROE growth, but very mindful of your comments. Thank you.

Conference Operator: The next question is from Wes Carmichael with Autonomous Research. Please go ahead.

John Barnidge, Analyst, Piper Sandler: Hey, thank you. Good morning. Tony, in your prepared remarks, you mentioned an expected pickup in jumbo PRT activity in the second half of the year in The U. S. I guess my question is when I look at the carriers that transacted with plan sponsors where there’s a class action lawsuit that’s been filed, those carriers have effectively not written any new business over the past few quarters at least.

So are those lawsuits not a hurdle that needs to be overcome before you see a meaningful increase in volume to those carriers?

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Yes. No, thank you for the question. Just to reiterate, look, obviously, long term, the PRT market fits well in our suite with the biometric, the size of the business, its U. S. And the market dynamics.

So we’re very excited medium, long term about the business. And as I shared, there has been, as you pointed out, a lull in the market, let’s say, and for various reasons. But I was encouraged and optimistic to at least start hearing there was green shoots, at least in our pipeline. Whether that continues, I’m encouraged and optimistic. It is lumpy business.

We are in the jumbo end of the market. So, but, yeah, it’s a it’s a positive sign that I didn’t necessarily expect, but let’s see if if those green shoots continue into going forward.

John Barnidge, Analyst, Piper Sandler: Gotcha. And then I guess a similar question to some that had been asked, but maybe slightly different. But on the recognition of the value of in force, just theoretically, should a large transaction come down the road and you want to deploy a big amount of capital and more than what you have that I’d call liquid or hard capital that you could buy back stock with. Are there steps that you need to take to be able to deploy that into a big deal like securitizations or any other measures?

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Thanks for the question. So yes, look, this deployable capital is deployable, right? So it is real capital available to be put to work in transactions. The capital sits frankly, most of it sits in the legal entities as excess capital relative to the respective regulatory frameworks in each entity. And so it’s there and available to be put to work.

In addition, of course, we manage holding company cash flows, and that’s what feeds the ability to then pay holding company expenses, interest debt expense, as well as share repurchases.

Conference Operator: The next question is from Michael Ward with UBS. Please go ahead.

Jonathan Porter, Chief Risk Officer, Reinsurance Group of America (RGA): Thanks. Good morning. I was just hoping you could help us kind of frame this the variability in the result this quarter. And I guess, I’m just thinking about if there’s a change in the earnings power, right, or even just 2026, the calendar year, because we have the equitable accretion, organic and inorganic growth, maybe some buyback. And then there’s maybe a little bit of a risk from some stop loss losses in the worst case scenario.

But is there anything else that should be changing how we think about 2026?

Axel Andre, Chief Financial Officer, Reinsurance Group of America (RGA): Hi, Mike. It’s Ekel. Thanks for the question. I mean, first, let me start off by saying we remain confident in our intermediate term financial targets that we laid out. We’re very pleased with the capital that we’ve deployed into attractive transactions.

So last year, 2024, we deployed 1,700,000,000 This year, year to date, if I take into account the Equitable transaction, we’ve deployed $2,200,000,000 So that adds significantly to the earnings power over time. We did communicate previously the earnings expectation for the Equitable transaction into 2026. I mentioned earlier today, dollars 160,000,000 to $170,000,000 a year of pretax income, which is a significant down payment on our target EPS growth. In addition to that, like Tony said, we have a lot of tailwinds. The creation re strategy is producing really well.

It’s enabling us to attract deals that produce returns that are above our targets. Investment portfolio, as we invest new money at significantly higher yield than current book yield, we’re picking up investment income. And lastly, balance sheet optimization, an example of which is the significant value of enforced credit that we receive, enables us to do more things with the resources that we have. So in short, we’re very confident about our targets and we would not be changing our run rates expectations based on one or two quarters worth of volatility.

Jonathan Porter, Chief Risk Officer, Reinsurance Group of America (RGA): Okay. That’s helpful. Thank you, Axel. And then just on the kind of the biometric or deal pipeline, Curious how you see that today versus financial solutions. And just curious how the regulatory regime changes in Asia maybe are impacting demand.

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Yeah. Let me take that one, Mike. Look. On the business front, it’s it’s it’s strong throughout. I mean, it it really is, whether it’s, you know, across the globe, whether it’s, with with strategic clients, repeat business.

And obviously, the nature of deals within the pipeline is really focused on the creationary and exclusivities. You mentioned our favorite word in the company, which is biometric for two reasons. One is it is obviously the driver of our traditional business, which as we shared is incredibly robust at this point with 11% premium growth rate and still very strong robust margins. But two, the second reason is even our asset intensive, which is our main second line of business, is really the sweet spot is when there is material biometric risk within that. And hence, we can go ahead and try and win the exclusive along with the creationary philosophy.

So there’s growth all over the place, but I want to make sure the audience is clear. When we look at the asset transactions, it is absolutely first question is how much biometric risk is in that block of business because we know that’s our way to differentiate, that’s our way to get creation rate, that’s our way to build a long term not only sustainable financial results, but obviously further strengthen our strategic platform.

Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Tony Chang for any closing remarks.

Tony Chang, President and CEO, Reinsurance Group of America (RGA): Well, thank you all for the questions and your continued interest in RJ. It was a great quarter in terms of our strategic successes, which we believe will continue to fuel our future growth and return. So with this, I want to end today’s call. Thank you very much.

Conference Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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