Please standby. We are about to begin. Good day. And welcome to the Reinsurance Group of America Fourth Quarter 2012 Results Conference Call. Today’s call is being recorded. At this time, I would like to introduce the President and Chief Executive Officer, Mr. Greig Woodring; and Senior Executive Vice President and Chief Financial Officer, Mr. Jack Lay. Please go ahead, Mr. Lay.

Okay. Thank you. Good morning to everyone. And welcome to RGA’s fourth quarter 2012 conference call. Joining me this morning is Greig Woodring, our CEO. I’ll turn the call over to Greig after a quick reminder about forward-looking information and non-GAAP financial measures. Following Greig’s prepared remarks, we’ll open the line for your questions. To help you better understand RGA’s business, we will make certain statements and discuss certain subjects during this call that will contain forward-looking information, including, among other things, investment performance, statements relating to projections of revenue or earnings and future financial performance and growth potential of RGA and its subsidiaries. Keep in mind that actual results could differ materially from expected results. A list of important factors that could cause those actual results to differ materially from expected results is included in the earnings release we issued yesterday. In addition, during the course of this call, we will make comments on pre-tax and after-tax operating -- phases for operating income, which is considered a non-GAAP financial measure under SEC regulations. We believe this measure better reflects the ongoing profitability and underlying trends of our business. Please refer to the tables in our press release and the quarterly financial supplement for more information on this measure and reconciliations of operating income to net income for our various business segments. These documents and additional information may be found on our Investor Relations website at rgare.com. With that, I’ll turn the call over to Greig.

Thank you, Jack. Good morning, everyone. Thanks for joining us. We are pleased to report record operating earnings this quarter driven by strong results in our individual U.S. mortality business and in our Canadian segment, as well as a relatively low effective tax rate. The fourth quarter performance helped complete an overall solid but somewhat uneven 2012. RGA enjoyed good premium and operating income growth, and despite the low interest rate environment we produced a 12% operating ROE for the year continuing a long trend of strong and stable returns. After-tax operating income was $182 million this quarter, up 51% over last year and operating earnings per share totaled $2.44, that’s a 49% increase over $1.64 last year. With the exception of Australia and the U.K. results were generally strong across the Board this quarter particularly in the U.S. and Canada. We continue to manage through a tough environment in Australia where we reported a modest loss for the fourth quarter. For the full year consolidated after-tax operating income was up 6% to $516 million or $6.96 per diluted share versus $486 million or $6.55 per share in 2011. Reported net premiums increased 7% for the quarterly and 8% for the full year. In local currencies those increases were 6% and 9%, respectively. Ignoring our spread-based business, investment income was up 6% quarter-over-quarter, portfolio grew $1.7 billion but the average yield was down 35 basis points compared to the fourth quarter of last year. For the full year, the average yield decreased about 30 basis points and dipped just below 5%. We are currently in reinvesting just below 4% so we’ll continue to feel additional downward pressure on our portfolio yield. Book value per share increased 18% in 2012 to $93.47, excluding AOCI it rose 13% to $64.95. Turning now…

Thank you. (Operator Instructions) We’ll take our first question from Sarah DeWitt of Barclays.

Hi. Good morning. I was wondering if you could update us on your view of whether or not there is any risk for the need to strengthen reserves again in Australia in 2013 and how should we be thinking about the earnings in that business going forward? Should we expect continued modest losses or what’s the trajectory for recovery there?

Sarah, we expect, first of all, we are always refining reserve calculations as each group achieves critical credible information levels, we refine our estimates all the time and that’s -- in that Group business the gap reserves are not locked down. So it is always open for adjustments like that. We expect that to happen in 2013. We do expect 2013 to be a much better year than 2012 but not at the levels of 2008 or ‘09 for example. It somewhere around to break-even here would be a good result. It’s continued workout situation as we are dealing with industrywide problems, as well as re-pricing on individual contracts. So it’s going to take a little while but we are pretty confident we can work through it.

Okay. Great. And then, could you update us on what you’re seeing in terms of pipeline for deals and does the new buyback signal that you’re seeing any less opportunities?

Yeah. No. It does and we’re seeing about the same level of opportunities which is a fairly high level as we’ve been seeing all year. They range from small to large and we can never really be sure of when or if they might land, but we would view our recent buyback authorization as an opportunity to provide us some flexibility and to manage our capital in the event that price sinks below target level. And so we are going to be using I think that during the course of 2013. And hopefully our best use of capital is to find strong transactions we can put it in and we are actively looking at that, but we can’t predict the timing of those. So that’s why we wanted some extra flexibility here.

Okay. Great. And then, if I could sneak one more in, just in terms of the guidance of 5% to 8% earnings growth over the intermediate term, what’s the right baseline to be using for 2012, is it about $7 of earnings ex-unusual item?

Yeah. Sarah, this is Jack. Maybe I could respond to that. Yeah, I think in terms of the baseline, yeah, this is roughly $7. In other words pretty close to where we landed is not a bad starting point. The guidance I’ll remind you is intermediate term guidance and which in our parlance that’s roughly three year sort of guidance, that sort of thing. And because the block deals or even stock buybacks are difficult to forecast in terms of timing upfront for a variety of reasons as you might expect. I think, I would argue that in terms of just coming up with an estimate for 2013, that range, I guess we would argue is a range, maybe a little aggressive, but not dramatically so. So you really have to kind of consider really high level assumptions in terms of capital deployment and that sort of thing. That’s why we -- more and more each year and this year is a first time we really thought, the idea of issuing the EPS guidance can be based on such high-level assumptions, maybe its better, just to go with longer term expectations in terms returns and growth rate. Does that help?

Okay. Yeah. Thanks for the answers.

And we’ll take our next question from Erik Bass of Citi.

Hi. Good morning. I guess just to follow up on a couple of Sarah’s questions. Yeah, first, if you could just talk a little bit more about near-term expectations and when you are talking about growth being consistent with recent results, just I mean, what period are you referring to and when you are looking at historic growth, I’m assuming it sounds from your answer like you are adjusting for kind of the reserve charges or releases and other large one-time items?

Yeah. This is Jack. I guess I would say, yeah, but you have got to be a little careful about what you pull out of the near-term results, because ours is a business that has a lot of refinements as you go. So, I would say take a look at the last couple of years when we said near-term we’re kind of thinking of that in terms of growth rates. We don’t expect to really depart from the growth rates we’ve exhibited over the last couple years, and so that’s probably to look back you may want to consider.

Got you. And then on the tax rate, I think you mentioned 33% to 34% is kind of the expectation. Is that assuming that kind of the active financing exception, the benefit is a little bit lower than it has been historically because of the lower international earnings from Australia or is there another reason that the tax rate is a little higher than it had been historically?

Yeah. Certainly that the overall expectation is that the active financing exception will be extended and I guess, that remains in part 2013, that remains to be seen. It didn’t have a dramatic effect on us in 2012 primarily because of the pattern of earnings in our international operations. The fact that we did not reflect an AFB, call it contribution to the tax provision in 2012, a very little affect just because of, as I said, the pattern of earnings and the difficult situation we experienced in Australian. And in fact, if you look at our effective tax rate in 2012, you see it’s off 3 point or so off more expected longer-term rate and about 2.5% of the beneficial effective tax rate really relates to the fact that we had difficult experience in Australia. Some of those treaties are written in such a way that if you do have worse experience than you expect you do pick up some of broad -- I should offset some of that in your effective tax rate. Now we don’t necessarily expect that to continue, so we would expect -- expected tax rate -- the effective tax rate to move off and we articulated that is roughly 33% to 34%, and that’s pretty much where we are expecting. Also, relative to FIN 48 while I’m talking about the tax rate, we do expect one year to roll off, so some modest benefit from the effects of FIN 48 in 2013.

Okay. Thanks. And just one last, well, I know on the third quarter call you spent decent amount of time talking about kind of the legacy U.S. mortality blocks, kind of the early 2000 vintage. Can you talk about kind of how that block performed this quarter and kind of in the outperformance in the Traditional U.S. kind of where you saw the better experience?

Erik, I actually don’t even know how that particular block performed because I have not seen a breakdown by year on the U.S. I presume it performed reasonably well this quarter. It’s always difficult to look at a quarter at a time and draw any conclusions whatsoever. So the conclusions we draw are longer term in nature. And that that business is still a problematic business, the returns on the U.S. mortality block are very, very nice if you exclude those issue years from say ‘99 to ‘04 policy -- policy issue years maybe 2000 to 2005, the competitive period of ‘98, ‘97 to ‘03 or so. Treaties lasted little longer in effect. So that business is the most difficult return business and without that, the returns are very nice in the U.S. on mortality market. So we would hope to get them showing through a little bit more in the future.

Okay. Thank you very much.

And we’ll take our next question from Jeff Schuman of Keefe, Bruyette, & Woods. Jeff Schuman - Keefe, Bruyette, & Woods: Thanks. Good morning. I was wondering if you could talk a little bit about top-line growth. I think for 2012 you did consolidated premium growth of 8%. I think the fourth quarter was similar, pretty strong number. Just so we can understand retrospectively, I mean, how much of that roughly was, kind of, core growth and how much of that was due more to sort of one-off transactions. And then can you give us a little bit of perspective going forward kind of what core growth rates look like at least in a couple of key markets versus how much you would have to layer in other means to kind of get to 5% to 8% earnings growth?

Jeff, I think the 8% was pretty much core growth for the most part of the -- that was in the fourth quarter in Europe, a couple of single premium blocks that totaled about a $100 million that will not necessarily repeat. But outside of that, most of the premium growth we’ve seen for the year has been core growth I would say. We’ve done some block transactions, in particular, a fairly large mortality block at the beginning of the year that has throughout the course of the year added something. But we are always looking at those and we’re looking at some of those right now, ranging from small to large. And so I would -- I would say that that growth is pretty solid. Jeff Schuman - Keefe, Bruyette, & Woods: Okay. So for example in the U.S. you started a pretty high growth rate and the bottom line is you start from a pretty good point in the core business and then they’re just going to look for ways to supplement that. Is that still a fair read?

I think that’s right. Jeff Schuman - Keefe, Bruyette, & Woods: Okay. And similarly in Canada, I think growth in Canada was particularly surprisingly strong in a pretty mature market. Were you still able to grow there?

Yeah. The growth in Canada is -- maybe stronger than the U.S. because it’s still in a different place in terms of the amount of business being seated. And also the fact that the liabilities are so long in Canada and the persistency is so high, means that we don’t have a lot of lapsation of the in-force block compared to other market. So that tends to make for higher growth in Canada. And we expect total double-digit growth in Canada going forward, for a little while any way. Jeff Schuman - Keefe, Bruyette, & Woods: Okay. That’s what I need. Thank you.

Jeff, this is Jack. Jeff Schuman - Keefe, Bruyette, & Woods: Sure.

Maybe I could just comment just briefly on the U.S. growth rate and lot of it gets down to your definitions in terms of core versus, in other words, if you consider core not to involve any block opportunities. And if you looked at 2012, there is certainly one block opportunity in there that probably enhance the growth rate by may be 2% or so for the year. But as Greg was saying, we constantly look at those sort of opportunities. So I guess, it gets definitional in terms of what do you call that course, with one block opportunity in 2012. Jeff Schuman - Keefe, Bruyette, & Woods: Okay. That’s helpful. Thanks guys.

And we’ll take our next question from Sean Dargan of Macquarie.

Thank you, and good morning. Just when we look at you reported book value per share, your AOCI component is very high relative to the most companies we look at. I guess, a, why is that and b, would you ever consider selling securities at a gain and deploying that capital somewhere else?

Sean, this is Jack. The part of the reason that it’s relatively high as we have a fairly long portfolio that supports our reserves in Canada. And so as you might imagine fairly long portfolio in this environment does attract quite a bit of unrealized appreciation and value. So that’s certainly part of it. I think if you’re comparing us to a lot of primary life companies, I think that would be one differentiating feature to our business. Relative to your second question, I mean, we look at all opportunities so and have looked at the extent to which we may want to realize some of the unrealized appreciation in the investment portfolio. But it’s not -- and there’s a whole lot of friction involved in that depending upon where the underlying securities reside in terms of our operating companies and the frictional cost just liquidating some of that portfolio and the fact that you would pay tax on it or incur tax on it. So there is a lot of moving parts on that and it’s not as easy as you might think in terms of just liberating. But certainly we do look at that sort of a transaction and consider continuing.

Thank you. And one more just in regards to the change in philosophy about giving EPS guidance, I think you guys have always said that on a quarter-to-quarter basis. Your business is volatile but on an annual basis, you’re able to give guidance range, which more often than not you hit, is the change just the wildcard of block acquisitions. What’s changed exactly?

This is Jack. The block acquisitions to me is the overriding and so it just seems to be more and more part of our operating structure. So around the edges, that is incrementally, it does have an effect on returns in any particular year in the pattern of operating earnings. So yeah -- volatility always been the case. That hasn’t changed dramatically but the fact that we do seem to be looking at more and more block transactions over the last several years and in fact put a rather large one on the books in 2012. That’s influenced our thinking on EPS guidance.

Okay. Thank you.

And we’ll take our next question from Jimmy Bhullar of JPMorgan.

Thank you. Good morning. I had a couple of questions. The first one is on Australia, you seem fairly optimistic but results have actually continued to disappoint the last several quarters. So I’m just trying to get a better idea on when you expect the benefit of repricing to help your results. Maybe if you could give us some more specific idea on when you started to reprice the business, how much of the poorly performing contracts have been repriced already and when should the entire book be done? And then secondly, just on your share buyback program, maybe if you could talk about potential, in terms of timing of when you initiate the program and just the timing of the potential completion?

Yeah. Let me take the first one, Jimmy. The biggest problems in 2012 were from the group business. The group business is more than 50%, a little bit more than 50% of our business in Australia. They typically are three-year contracts and there’s been a lot of bad experience in the industry that has just in the last little while started to show and deteriorate. And so we are repricing. We have not been very aggressive in pricing that business. So you’ve seen a leveling off of our premiums and even maybe a contraction in some of our premiums, that’s to be expected going forward as well. And so this is occurring but these are three-year contracts and we will be repricing everything over the three years.

When you started, have you been in to the process for about a year, I’m assuming, given that you had the charge in the fourth quarter of last year?

Yeah. Yeah. We’ve been -- the charge last year was more on disability but yeah, we have been repricing continually and probably it’s good to think of this year as, sort of, first year where we’re seeing major repricing in the marketplace.

Okay.

Yeah. Jimmy, I’m with you. On the share buyback, we really look at that as an opportunity and a lot will depend upon where the shares trade as you might imagine. And our own internal analysis of likelihood of deploying capital in other ways into the business, so it’s not like we have an ironclad plan on when to complete, for instance, that authorization. It may take a while. If the stock trades off, obviously we would get it done more quickly. But we just see that as one of the flexibilities we have in managing capital going forward.

And then, any reason, why you didn’t pursue buybacks. Obviously, you didn’t have an authorization but why you didn’t pursue buybacks after -- when the stock declined sharply after third quarter earnings.

Well, primarily as you mentioned, we didn’t have the authorization and so we didn’t have the opportunity to pursue buybacks at that point.

We were putting together a longer-term capital outlook, Jimmy.

Okay.

So we were a taking a good longer term look at, not only how much excess capital we have but how that’s going to be growing over the next several years.

But then as you think about going forward, should we assume that you would buyback stock if everything is normal and the results are fine or are you going to be more opportunistic and only do it when the stock actually pulls back because of the weak quarter or something else?

That’s a hard one to answer, Jimmy. I can’t say that our plan right now has it defined in one of those two categories.

Okay. Thank you.

We’ll take our next question from Ryan Krueger of Dowling & Partners. Ryan Krueger - Dowling & Partners: Hey, good morning guys. I don’t want to beat the issue to death but I did want to just come back to the guidance and clarify something, I think you said, Jack. Did I hear you correctly that you said the 5% to 8% intermediate-term EPS guidance might be a bit aggressive near-term, implying that the near-term growth rate might be slightly less than that. Is that what you said?

Well, not exactly. I did say that it could be considered somewhat aggressive but I didn’t mean to leave the impression that that means near-term we expect to be out of that range. Maybe a better way to put it is, would be toward is lower end of that range, depending upon how quickly we deploy capital.

Yeah. If you look over three years and you took the top of that range, 8%, that would be pretty aggressive to think of 8% for three years. Ryan Krueger - Dowling & Partners: Okay. There’s more just within the range than maybe you stated lower due to the timing of capital deployment near term. Is that a fair way to think about it?

Yeah. I think. That’s a better way to look at it. Ryan Krueger - Dowling & Partners: Okay. Great. And then I just wanted to come back to the U.S. mortality. It bounced around a lot this year and I think you characterized the first three quarters as below your expectations and then this quarter much better. When you think about the full-year 2012 experience, is that relatively consistent with what you would actually expect over time for the U.S. mortality results or does it differ?

We think, Ryan, that we will look back on 2012 as a generally good mortality year. And that part of that is saying that the mortality on that block from the troubled years is deteriorated enough and settled in at a lower level than our previous expectations. And for business of the same, the same age and duration in surrounding years so that when we look back we’ll probably think 2012 was a pretty good year. Ryan Krueger - Dowling & Partners: Okay. So I see. It actually ended up a bit better than your full-year expectations?

That modestly.

I think that’s why we’ll say modestly. Ryan Krueger - Dowling & Partners: Okay. Great. Thanks, guys.

We’ll take our next question from Humphrey Lee of UBS.

Hi. Good morning. A question about the U.K. results, I think U.K. operation has reported unfavorable claims in three of the last four quarters. I think first quarter is critical illness and the second quarter was mortality and then this quarter again it’s critical illness. So first can you quantify the drag in the U.K. for this quarter and then also how should we think about the operating results in U.K. going forward? Are you seeing any secular trend?

Humphrey, this is Jack. In terms of quantifying the effect for the quarter, it’s probably in the $7 million range. And in terms of what to expect going forward, the critical illness business had been running a very, very nicely for us, up until this year. And we’ve had two bad quarters. We’re always alert for whether there’s a trend involved. The expense in the fourth quarter tended to be reflected very late in the year, so it’s hard to get a reading at this point on it. We have heard a lot of anecdotal evidence about for critical illness experience in the marketplace in the fourth quarter, outside of RGA. So we don’t know how to read it yet. Having two bad quarters in a certain line of business, it is not anything to be concerned about. It was first in the fourth quarter for critical illness this year as you said that, that was difficult and we will be paying a lot of attention to it. But we don’t at this point hear or see any reason to send up any alarm bells.

Yeah. The reason I wanted to ask about this is because some of the primary writers have been complaining about pricing in the U.K. market has been quite aggressive in recent years. So I was just wondering if there’s any kind of quality issue a bit more recently in vintage blocks?

Well, you’re right about that. The market is very aggressive and competitive market and has been. We’ve mentioned that a few times ourselves that how competitive the UK market has been really for the last four or five years. And this is business, we will as I said be watching very carefully going forward and doing a lot of study on. But at this stage, like I said, we don’t really know that there’s anything to be overly concerned about yet.

Okay. Got it. And then looking at Canada, with the credit reinsurance reserve adjustment aside, the non-creditor business seems to be doing quite well for the fourth quarter as well. I think the loss ratio was 87.5 compared to the mid-90s in the past two quarters. Anything there going on and then also kind of how should we think about it going forward?

That creditor reserve adjustment, you can think of it as catching up from the inception of time on the creditor business, with more refined data. That business -- we expect that creditor business to be actually lower margins than our individual mortality business got more predictable, less volatile since there are lot of small amounts and reasonably manageable. So we do expect that business to be stable although a little lower margin than our other business. So this was a bit of a one-time catch-up to where we should have been over time.

So, I think maybe I wasn’t clear. I meant the non-creditor business, the loss ratio seems to have improved this quarter compared to the past quarters. So I think for this quarter, it’s 87.5 and for the past two quarters it was in the mid-to-high 90% range. I was just wondering for the kind of more traditional business if there’s something, kind of, changing going on?

Humphrey, yeah, you’re right the non-creditor business has performed very well throughout the year, some quarters little bit better than others. But that performance of just the individual mortality business in Canada has performed better than our expectation for several years running now.

Okay. And then if I can sneak one more in, you mentioned that for 2013 your expense -- FIN 48 come through. Like I’ve seen in the past usually comes through in the third quarter. In terms of timing wise for 2013, should we expect that to happen as well or kind of, it will be different?

You’re right in that. In the past when it was a more regular role of year-to-year, it was different in the third quarter because that’s when we would finalize the tax return and so on. I think probably any impact would more likely be in the fourth quarter of 2013. That’s a guess because we could become aware in some other quarter that are comparable that we can release the year but the best guess right now would be the fourth quarter.

Okay. Got it. Thanks.

And we’ll take our next question from [Bill Procter].

Yeah. Good morning. First of all, getting back to your guidance, I’m not sure if the numbers jive. When you say you will have a return on equity of 11% to 12% and your payout ratio is about 15%, so that would suggest earnings growth, earnings per share growth of about 10%. And even if you invest $200 million to $400 million of excess capital a year, it would appear you are generating more than that even after paying your dividends. So should we assume that you could make 10% with the difference between the $528 million coming from either acquisitions or share buybacks?

Yeah. And this is Jack. That latter point, that’s kind of the difficult part to predict in terms of not only how much capital will we deployed, but how quickly will it work its way into the return on equity. And when we deploy it into a transaction, how quickly it reaches it’s sort of cruising speed in terms of ROE. So those are all guesses.

Okay. And the second point. I appreciate you don’t want to create a capital gain from selling some bonds in your portfolio. But on a go-forward basis, would it not make sense given bonds have outperformed equities over the last, like 20 years that you would start allocating the money to equities as opposed to bonds?

Yeah. That’s certainly deliberation that we consider. The capital requirements are different, so a lot depends on where you would have those securities. It’s very difficult to allocate a lot of capital to a lot of investment to equities because of the capital required to do so. It’s also the case that taking capital gains on some of our biggest portfolios such as the Canadian portfolio means we’d have to put up more reserves and more equity in Canada because going forward, interest rate would be lower. So there is all sorts of implications of taking capital gain prematurely.

Okay. And my last point would be -- what would be your guess as to the split on your 33% to 34% tax rate, what would your guess be as the split between current taxes and deferred taxes?

Predominantly, deferred taxes.

Okay. And would that continue for some time.

Yeah. I think it will likely. It’d be likely to continue for some time. Okay.

Okay. Great. Thanks very much. Good quarter.

We’ll take our next question from Steven Schwartz of Raymond James and Associates.

Hey. Good morning, guys. Apologies in advance. I got a few. First of, can a public-service statement, would it be possible -- I know you guys don’t want to do the yearly guidance and I can’t blame you for that. But would it be possible at least to get maybe a breakdown of the quarter or the year of what premiums look like in various countries knowing that in the past it’s been helpful in trying to predict the effects of foreign currency? So that would just be a request. Greg, maybe you can talk about pricing in the U.S. I assumed was $19 billion, I think that was a new low as long as I’ve been covering the company. What is going on with pricing given that penetration is obviously continuing to decline?

Yeah. There is -- I think we think that pricing is still okay. We think that the returns we’re getting on current new business are meeting our expectations. We are of the fact that the size of the market continues to shrink a bit in the U.S. And we expect that to ultimately put some pressure on some players, but we don’t really see that having a huge effect on pricing. It’s little more competitive than it was five years ago, but I wouldn’t say too far. We are reasonably happy with the pricing levels, just not with the production levels.

Okay. If we can turned it -- taxes, I’m a little bit confused, Jack. You talked about the active income finance exemption, that didn’t get passed until the first quarter as part of the fiscal cliff deal. Did you apply that retroactively to 2012?

No. Steven, we didn’t because of the timing. When it was extended, we determined that really couldn’t reflect that in 2012. So it will be reflected in 2013, but because of the pattern of our international earnings, it won’t -- the 2012 AFP won’t have that dramatic of an affect. We will reflect them in the first quarter but it’s fairly nominal.

Okay. So you are saying is the, what just passed is going to be in the first quarter. It’s going to have a big effect.

That’s right.

Okay. I got it.

My comment on further extension would affect the rest of the year and it’s little harder to call how much affect that will have.

Okay. All right. Okay. I understand. Thank you. And then just revisiting capital and capital management. The $600 million, Jack that you cited because I don’t remember, does that include a buffer?

Yeah. We are a little bit, we are little bit over $600 million kind of at year end and that looks the best way to describe it. That doesn’t include a buffer. In other words that’s an amount above and beyond what we do to be the typical requirement. If we want a buffer, for instance, if we wanted a $300 million buffer that would imply -- we’ve got $300 million that we could deploy. But the way we look at it, just to be clear that buffer is kind of nice to have. At over time, we do shoot to have some sort of a buffer. But if we had the opportunity to deploy all $600 million at what we view to be an attractive return, we don’t feel compelled to maintain a buffer rate at any point in time. That’s more of the long-term issue.

Okay. Great. And then, just thinking about capital generation, I know you want to get into earnings but how should we think of, maybe free capital generated relative to GAAP?

Yeah. What’s the best way to answer? Our best estimate would be that we would, with our current portfolio business generate probably over $200 million and maybe $250 million-ish of capital in a typical year and it won’t be exactly. That will be more or less but that’s what we would expect, and we would expect to have access to that capital. In other words, it’s not locked to a meaningful degree and operating subsidiaries. We can move it and we can use it if we have deployment opportunities.

Okay. And then and one more for me. On the creditor business in Canada, if my understanding is correct you’re basically saying here that that upon further review, the loss ratios in the past were probably recorded at too high a level. I noticed if you had about $60 million, the loss ratio and the creditor business in Canada would be around 34%, which would be kind of below low end of the historical range. Is 34% a good number to go forward?

I’m not quite sure of your calculation. Keep in mind that that $16 million adjustment is cumulative over and not seven or eight years level, a fairly long-term decline.

Okay. All right. That’s good info. Thanks, guys. Good quarter.

We’ll take our next question from John Nadel of Sterne Agee.

All right. Hey. Good morning, everybody. I just have a question about the 5% to 8% over the intermediate term. Should we be thinking about that as interchangeable between operating earnings and EPS in that? I think you are baking in $200 million to $400 million of annual capital deployment. Perhaps that comes in the form of a deal. Perhaps that comes in the form of buybacks or some combination of the two. So should we be thinking about the 5% to 8% is interchangeable?

John, this is Jack. It’s very close to interchangeable. But yeah, I think the differential would be fairly insignificant. So, I guess the answer is yeah.

Okay. Okay. And then on -- I you may have missed it. I think it was mentioned in prepared remarks, could you just remind us what your estimate is for pressure from sustained low longer-term rates?

Yeah. Best guess is probably about $0.25 a share.

In ‘13 over ‘12?

Yeah. And then likely diminishing -- in other words, we don’t expect that to just continue at that level but that’s a reasonable estimate for 2013.

Okay. And my last question is a bit more touchy because I want to ask a little bit about compensation. In the past as I recall, management’s short-term incentive compensation was very highly correlated to achieving EPS within your annual guidance range. And so now without specific annual EPS guidance, I’m just wondering if that shorter-term incentive program has changed as it relates to sort of what are the key drivers.

The answer is no, John. We will have an internal target that we are aiming with an operating earnings EPS target in there, and we’ll also have revenue in ROE as components of our compensation as well.

Okay. I understand the idea of moving away from stated annual EPS objectives. But if it’s indeed still a key driver of how management gets paid I guess I’m unclear as to why it wouldn’t be disclosed publicly.

I think it’s for the reasons that we mentioned earlier that we tend to have a fairly broad range of possible results. Even though we’ve managed to hit near the center of our guidance, I think in the last two, three years at least. It’s really the case that that we have a fairly broad range of possible outcomes and…

Okay.

We live within that, but we think it’s not anything to fixate on the annual guidance. We’d rather look at longer-term growth rates and trend rates.

I listen. I appreciate that fully, especially with your business. If I could sneak one last one, just asset intensive, Jack. I mean, this quarter was significantly above what -- at least I can say what I was expecting. Can you help us understand, what sort of drove that?

Yeah. And maybe, let me take a step back. First, in terms of going forward, that asset intensive business, we would expect a run rate just based on the generic business as well what’s in the portfolio. Now, to be in the $30 million to $35 million per quarter range, maybe little bit towards the lower end of that estimate. In terms of the fourth quarter of 2012, we had several treaties that just performed better than we would’ve expected. Sometimes, you will have things fall your way a little bit with respect to investment earnings. And really what happened in the fourth quarter, I will remind you also that the large transaction that we executed as of the beginning of the second quarter. For the second and third quarter, we’re doing a lot of investment repositioning. We really completed that process in October. So we really had a pretty good run rate on that business for all of the fourth quarter and that contributed fairly significantly.

And is it fair to characterize the Hancock fixed annuity coinsurance deal is now, especially given they are fully invested, is that at your sort of targeted returns?

Yeah. It is.

Okay.

We completely deployed in the manner that we expected and it is meeting those return hurdles.

All right. Terrific. Thanks guys.

We’ll take our next question from Paul Sarran of Evercore Partners.

Thanks, good morning. It seems like you’ve had a fair amount of luck getting block deals done in Europe. But I was wondering if you could comment on what the outlook over there is, what you’re seeing and kind of how much more to this opportunity there is?

It’s hard to tell. The opportunities, that looks pretty rich. We’ve done a few transactions that were similar over the last couple years. We did a couple this year and one last year. And so we are trying to repeat that process wherever we can, but it’s not clear how much additional opportunity scope there will be. There is essentially a couple I suppose. But we do view that the European market does offer a lot of in-force block opportunities because of some of the Solvency II and some of the other things happening in Europe and the realignment of insurance companies there as they react to these new forces hitting themselves. There seems to be a lot of opportunities. It’s always hard to predict exactly what’s going to happen. If we have an opportunity to repeat a success, we will try to do that like we have done successfully in the last couple years. But it’s hard to say, what is really going to happen in 2013.

Okay. And then a quick question on Fin Re. It looks like operating expenses were a little bit high in a $4.5 million versus a run rate, last several quarters of $1 million to $2 million. Was there anything unusual in the quarter there? And then looking forward, you have had pretty strong growth rate. I guess same question, how much more is there to this opportunity?

On the expense level, we did have some structuring costs associated with some deals that we put in the books. So that will bounce around a little bit, but that’s what you saw in the fourth quarter in terms of growth rates breakdown.

A lot of the growth has come in international markets. We think that in Asia in particular, there’s a lot more financial reinsurance opportunities in the near-term because the growth rates in that market are so high that it’s put a capital pressure on companies and it looks like a very good market for us. So we’re also trying to develop more opportunities in other markets that we haven’t really penetrated yet. So we are pretty optimistic about reasonable growth in the financial reinsurance businesses.

Okay. Thanks.

And we’ll take our next question from Scott Horsburgh of Seger-Elvekrog.

Good morning and thank you for taking the call. Just another way of trying to spin the guidance -- the intermediate-term guidance. So maintaining the 11% to 12% return on equity target and growing 5% to 8% a year implies the excess capital generation you guided to something like $3 to $6 per share per year on average. And, so what’s the priority and the timing of reinvesting the excess capital or then ultimately deciding to return it to shareholders?

Scott, I’d say the priority is -- typically has been to reinvest in the business if we see returns are attractive. So the problem is determining timing on that because you just can’t tell because there are extended negotiations and that sort of thing on most of these block transactions. So, I guess I would state that we are looking at deployment in terms of in the business as well as through opportunistic buybacks somewhat equally. In other words both are attractive and we think we can accommodate both going forward. I don’t know if that necessarily answers your question, but that’s the way we look at it.

Yeah. In a way it does. I guess I’m just wondering at what point does the capital build up to where you kind of feel forced to do something either on the dividend or on the buyback?

Yeah. That’s a tricky one because as you can imagine at any point in time, a lot depends on where we are vis-à-vis discussions on block deals and how we handicap, actually executing and closing those deals or maybe a better way to express it, if we go deeper into the year and just don’t feel we’ve got opportunities that we think we will be able to execute it then we will look much more strongly at, certainly our dividend as well as buybacks.

Okay. That was helpful. Thank you.

There are no further questions in the queue. At this time, I’d like to turn the call back over to Mr. Lay for any additional or closing remarks.

All right. No remarks other than thanks to all the investors and analysts who took the time to participate this morning and with that we’ll close our call. Thank you very much.

This concludes today’s conference call. We thank you for your participation.