管理層發言
Good morning, and welcome to the Reinsurance Group of America Second Quarter 2025 Earnings Conference Call. 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.
Thank you. Welcome to RGA's Second Quarter 2025 Conference Call. I'm joined on the call this morning with Tony Cheng, RGA's President and CEO; Axel Andre, Chief Financial Officer; Leslie Barbi, 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 the 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 a 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.
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 months, 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 RGA'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 solutions space, the nature of our solutions does vary around the world. But what is consistent throughout and what drives this business momentum is our focus on Creation Re. 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 RGA 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. that 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. RGA, with its many touchpoints 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 U.K., 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 U.K. was an asset-intensive transaction with a new client. We partnered to develop a tailored solution made possible because of RGA'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 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 an 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 RGA 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.
Thanks, Tony. RGA reported pretax adjusted operating income of $421 million for the quarter or $4.72 per share after tax. For the trailing 12 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 $3.8 billion at the end of Q2. Pro forma for the Equitable transaction, which I'll discuss in more detail, excess capital was $2.3 billion.
Similarly, our deployable capital increased to $3.4 billion at the end of the quarter. During the period, we deployed $276 million into in-force transactions. Our nonspread portfolio yield, excluding variable investment income, was 4.98% in Q2, up 8 basis points from the first quarter. Total variable investment income was strong at $105 million, 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 will only report six months of earnings in our 2025 GAAP results. The Q2 earnings on the block are estimated to be $30 million, in line with our expectations, and these will be deferred and amortized into earnings over the life of the transaction. For the second half of 2025, we still expect pretax operating income contributions of approximately $70 million, increasing to $160 million to $170 million in 2026 and approximately $200 million per year by 2027.
Turning to biometric claims experience as outlined on Slide 8 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 million with a corresponding $158 million 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 excess 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 excess 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 million to $30 million 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 8 of our presentation, on a longer-term basis, economic claims experience for the total company has been favorable by $272 million since the beginning of 2023 when we more fully emerged from COVID. U.S. Individual Life represents approximately $75 million 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 billion at the end of the quarter, an increase of approximately $4 billion year-to-date, with approximately $2 billion 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 impact 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 $3.8 billion at the end of Q2 or $2.3 billion pro forma 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 $3.4 billion 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 12 months, taking into account estimated capital sources and committed uses over that forward-looking 12-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 6. 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 in 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 segment reported an adjusted operating loss before tax of $32 million, favorable compared to the expected quarterly average run rate. Moving to investments on Slides 9 through 12. The nonspread 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 nonspread 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 that we look to deploy 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 the impact from B36 embedded derivatives, increased to $156.63, which represents a compounded annual growth rate of 9.7% since the beginning of 2021. To summarize, following a strong first quarter, this quarter's results were impacted by claims experienced 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 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.
分析師問答
Our first question today comes from John Barnidge with Piper Sandler.
Can you talk a little bit more about the additional credit you got on the life block? I know it was probably a very thorough analysis across markets and products. What changes were made? And did you make an assumption for an improvement in the obesity epidemic because of GLP-1 drug?
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.
Yes. Are you considering incorporating that with the third quarter actuarial assumption review, is my follow-up?
It is too early to be talking about the third quarter actuarial assumptions work. This work is still ongoing, and we will be discussing that on the next quarter's earnings call.
The next question is from Joel Hurwitz with Dowling & Partners.
Can you just unpack the individual life experience in the quarter? Was there some significant lag effect from Q1? And was there any impact from you guys increasing retentions at the beginning of the year?
Yes, Joel, thanks for the question. This is Jonathan. When we review claims experience, we 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.
Okay. Got it. And then, Axel, going back to the $2 billion 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, and I guess just in your deck, right, you talk about the binding capital framework can change. Was there a change? And then just what would cause that to change?
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, the value of in-force is a process that we pursued with rating agencies. So it says that the rating agency capital framework was all binding constraints and that through this work, which is thorough and requires third-party review and a thorough 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.
The next question is from Elyse Greenspan with Wells Fargo.
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?
Elyse, this is Jonathan. I'll address that question. We have been in this line of business for a long time and possess substantial expertise. It has consistently performed well and remained profitable, even considering this quarter's results. Our U.S. Group business consists of four key lines, three of which are performing as anticipated. The challenges we're facing this quarter are related to our healthcare excess line, which accounts for about 30% of our expected U.S. Group earnings, translating to roughly 3% of our U.S. traditional earnings. The results for this quarter are largely influenced by higher claims costs due to a range of costly treatments, including specialty drugs, transplants, premature births, and certain cancer therapies. As Axel pointed out, this business is short-term and can be repriced annually, allowing us to quickly respond to the experience variances. We do expect margins to improve as we move into 2026. Regarding rate increases, as you noted, we have already implemented significant rate increases this year on blocks that have been renewed. While I can't provide an exact figure, the increases have been substantial, and we anticipate this trend will continue.
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?
Yes. Thank you for the question, Elyse. Yes. 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 seeking opportunities to create more value of in-force recognition through the rating agency process.
The next question is from Jimmy Bhullar with JPMorgan.
I have a few questions. First, regarding the health insurance business, can you explain the delay in your results compared to what your clients are experiencing? Given that health insurance results have generally declined in the second quarter, should we anticipate that this trend will continue into the third or fourth quarter? Even though you're planning to adjust some of your pricing, might your results worsen in the short term, possibly not improving until 2026? Secondly, about capital, it seems like your excess or deployable capital accounts for approximately 20% to 30% of your market cap. However, looking at traditional metrics like debt-to-cap or RBC, they suggest there isn't as much excess capital. Additionally, despite having a relatively low valuation, you have not been actively buying back stock, although you have invested capital in other deals. In my opinion, the concept of excess capital is more subjective than objective. What are your priorities for utilizing that excess capital in the next year or two? Are you now more open to stock buybacks than you have been recently?
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 services 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.
Okay.
Jimmy, to address the question regarding capital, I want to emphasize that our business is performing exceptionally well. The returns we're seeing from new business are positively impacting our return on equity guidance of 13% to 15%, and we've actually seen an increase this quarter based on internal management reports. Our business is strong, and our responsibility from an investor's standpoint is to enhance ROE and drive EPS growth. Share repurchases are an effective strategy for achieving EPS growth and improving ROE at the right price. We're working to balance these two priorities, and we're currently aiming to return 20% to 30% of our earnings to shareholders. As you know, we haven't repurchased any stock in the last six quarters, so I want to communicate that we will now start considering stock buybacks moving forward. Axel, if you have anything to add, feel free to take it from here.
Yes, we are very pleased with our current capital position. We have the flexibility to invest in the business and return capital to shareholders. We plan to approach share buybacks opportunistically each quarter, but over the long term, we anticipate a payout ratio of 20% to 30% through dividends and buybacks, subject to quarterly variations, consistent with our historical practices. I would like to remind you that we manage multiple balance sheets and legal entities under both the U.S. RBC framework and the Bermuda framework. Our capital metrics are assessed on a consolidated basis and take into account all frameworks and the most binding constraints, including regulatory considerations, which ultimately dictate those metrics.
The next question is from Wilma Burdis with Raymond James.
Do you think any of the higher costs you're seeing in excess health care on more expensive but more effective treatments could eventually be offset by savings on claims and life down the line?
Yes. Thanks, Wilma. This is Jonathan. I think that's a very valid point. That's one of the things that excites us about the potential opportunities in the mortality space. It's also another reason why we pursued diversification from a risk perspective at the enterprise level. When we see possible stress or volatility negatively affecting one line of business, it can support growth either now or in the future in another line of business. That's part of how we consider our mix of risks at the enterprise level.
Yes. Wilma, let me just add. Now, thank 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 impact from the medical advances, as Jonathan mentioned, whether it's GLP-1 or other medical advances, we expect to see in the future way outweigh the short-term earnings impact quite tremendously. So thank you for the question.
Is RGA close to retaining its excess healthcare business? I'm trying to evaluate how confident you are about the remaining weakness there, especially since many of those claims come in towards the end of the year.
Wilma, this is Jonathan again. As I mentioned earlier, I believe the reserves we have set up this quarter, which are contributing to the negative result, represent our best estimate of the claims we expect for the premiums we've already recognized and earned. The drag effect that Axel referenced is related to additional reserves that we anticipate establishing as the premiums are earned throughout the remainder of the year. However, at this time, we feel that our reserves are suitable for the business.
Yes, it's Tony here. As we mentioned, this is a very short-term business. We’ve indicated that the majority will be repriced by January 1, and I believe all of it will be repriced by the following quarter. January 1 serves as the main renewal period, making it quite self-contained. We have already taken actions for the July renewals, and we are confident in our position.
The next question is from Ryan Krueger with KBW.
Just one more follow-up on the value-in-force credit. Did you actually have to do anything in regards to 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? I just wanted to make sure I understood that.
Yes, Ryan, thank you for your question. This is Axel. This situation is really about recognizing the value of in-force that didn't require any securitization or borrowing. We still have that option available to us if we see value in pursuing it in the future. However, this specific instance was solely related to the process we went through with the rating agencies.
Yes, Ryan, maybe if you don't mind me adding strategically. I mean, we talk a lot about our long-term value or what we call the value of in-force business margins, which is now at $41 billion. That generates these opportunities, right? If you don't have the embedded value in the company, you can't do these things. So 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, other 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.
Tony, you mentioned some high-profile blocks in the market that you decided not to bid on during the quarter. I'm curious if you are referring to deals that have already been announced or if you mean deals that are currently in the market where transactions have not yet occurred.
Yes, thank you, Ryan. That does pertain to transactions that have taken place. I understand there are questions about the businesses we've engaged in, like LTC or ULSG. I want to reassure everyone that we have no intention of expanding our involvement in that area. The most telling evidence, aside from me stating this repeatedly, is our actions. In the first quarter, a significant LTC block was offered, and we chose not to participate. It simply did not align with our strict criteria for LTC. In the second quarter, there were several variable annuities and ULSG options, and again, we were not interested. We have our global platform and numerous businesses worldwide that we prefer to focus our capital on. This approach allows us to benefit from improved returns through our pricing strategies based on the business we secure. We aim to find a balance in our business while staying committed to creating long-term value and, as I previously mentioned, growing our EPS and ROE.
The next question is from Suneet Kamath with Jefferies.
Great. I did want to come back to the $2 billion 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 billion is at $2 billion. 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.
Thank you, Suneet, for the question. It's important to note that we have a very rigorous review process for evaluating the value of in-force in our frameworks. This process begins with our conservative actuarial assumptions, which are supported by extensive historical data and thorough information. Additionally, it's worth mentioning that we only receive partial credit for the value of in-force, specifically less than 50%. Therefore, we are quite confident in the amount recognized through that framework. As I noted earlier, this has also been assessed by a third party and is part of the rating agency process.
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 is 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?
Thank you, Suneet, for your question. When I think about the earlier days of RGA, I can clearly reference our work in Asia where I played a key role for 20 years. Our approach has always been proactive and innovative, focusing on finding solutions that help our clients grow and succeed. This strategy creates additional value that we can share. We're definitely more aggressive in this proactive stance, which I believe is less risky overall, as a commoditized business does not support our long-term objectives. This mindset isn't limited to Asia; we have exceptional leadership across the organization, fostering a culture of innovation and proactive solutions since our inception. We concentrate solely on life and health risk, which means we must excel in this field. We've invested globally to attract top talent, and we're proud of our team. While market fluctuations will occur, our focus remains on growing EPS and increasing ROE, with confidence that the market will align with our strategy in the medium to long term.
The next question is from Tom Gallagher with Evercore ISI.
I have a follow-up regarding the $2 billion capital benefit from the value of in-force. Is there a practical limitation on how much you could achieve, like a maximum? I assume you can't go to 100% of equity capital. When we consider the $2 billion, would the limit be half of total actual equity based on a credit profile? Can you provide a framework and perhaps clarify the theoretical maximum? That's my first question.
Thank you for the question, Tom. First, let's talk about the substantial embedded value of in-force in our business. One way we evaluate this is through the value of in-force business margin, which reflects the long-term embedded underwriting margins in our operations. You're correct that there is a limit to the value of in-force credit that rating agencies can recognize. However, we believe there are still opportunities to capture more value of in-force with additional in-force blocks on our balance sheet. Additionally, we have three capital frameworks: economic capital, regulatory, and rating agency, with the latter two now being roughly equivalent. Moving forward, we aim to enhance recognition of the value of in-force while also improving on the regulatory side. In the past, we’ve been successful in this area through measures like retrocession of business and various capital management tools that help free up capital for reinvestment.
And then my follow-up is, Tony, really, it's a question about do you think something needs to change here? And the reason I ask you is because 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 Re, 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 Re? 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.
Yes. Now, thanks, Tom, for the clarity of the question. There are things we can do. So where the volatility usually happens is around the capped cohorts under LDTI. Obviously, the other cohorts get smoothed out over the life. So yes, we could, in theory, retrocede those blocks of business, give up economic value as you suggest, whether it's Ruby or some third party on an arms length. So we balance all of those considerations, but we've got finite resources. So the alternative to that could be 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, right? 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 2003, the experience has been strong. And the market is going to do what the market's 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.
The next question is from Wes Carmichael with Autonomous Research.
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?
Thank you for the question. To reiterate, we believe the PRT market aligns well with our strengths, given its biometric aspect, its size in the U.S., and the market dynamics. We are very optimistic about the business in the medium to long term. As you mentioned, there has been a slowdown in the market for various reasons. However, I am encouraged to start seeing some positive indicators in our pipeline. While it is uncertain if this trend will continue, I remain hopeful. The business can be inconsistent since we are focused on the jumbo segment of the market, but the signs we are seeing are more positive than I anticipated. We will have to see if this momentum persists moving forward.
Got you. And then I guess a similar question to some that have been asked, but maybe slightly different. On the recognition of the value of in-force, just theoretically, like 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?
Thank you for the question. Yes, this deployable capital is indeed available for transactions. Most of it is held within legal entities as excess capital according to the respective regulatory frameworks. It is accessible for use. Additionally, we manage the cash flows from the holding company, which supports our ability to cover expenses, pay interest on debt, and conduct share repurchases.
The next question is from Michael Ward with UBS.
I was hoping you could help us understand the variability in this quarter's results. I'm considering whether this might affect our earnings potential in 2026, taking into account equitable accretion, organic and inorganic growth, potential buybacks, and the risk of stop-loss losses in a worst-case scenario. Is there anything else we should consider that could influence our outlook for 2026?
Mike, it's Axel. 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 $1.7 billion. This year, year-to-date, if I take into account the Equitable transaction, we've deployed $2.2 billion. 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, $160 million to $170 million 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 in current book yield, we're picking up investment income. And lastly, balance sheet optimization, an example of which is the significant value of in-force 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 rate or our expectations based on one or two quarters' worth of volatility.
Okay. That's helpful. 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?
Yes, let me take that one, Mike. The business is strong across the board, whether globally or with our strategic clients' repeat business. The focus in our pipeline is on Creation Re and exclusivity. You mentioned our favorite word, biometric, for two reasons. First, it drives our traditional business, which is currently very robust with an 11% premium growth rate and strong margins. Second, our asset-intensive second line of business thrives when there is significant biometric risk involved, allowing us to pursue exclusivity alongside the Creation Re strategy. Growth is evident everywhere, but I want to clarify that when we assess asset transactions, the first question is always how much biometric risk exists in that segment of business. This is crucial for our differentiation and our pursuit of Creation Re, as well as our goal of achieving sustainable long-term financial performance and strengthening our strategic platform.
This concludes our question-and-answer session. I would like to turn the conference back over to Tony Cheng for any closing remarks.
Well, thank you all for the questions and your continued interest in RGA. It was a great quarter in terms of our strategic successes, which we believe will continue to fuel our future growth and returns. So with this, I want to end today's call. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.