Good day and welcome to the Reinsurance Group of America Fourth Quarter 2014 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 and welcome everyone to RGA’s fourth quarter 2014 conference call. Joining me this morning in St. Louis is Greig Woodring, our CEO. Greig and I will discuss the fourth quarter results after a quick reminder about forward-looking information and non-GAAP financial measures. Following our prepared remarks, we’ll be happy to take 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, our 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 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 a pre-tax and after-tax basis 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 the press release and 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 Web site at rgare.com. With that, I'll turn the call over to Greig.

Thank you, Jack. Good morning everyone and thanks for joining us this morning. I will provide general overview comments on the quarter and Jack will go over the financial results and guidance and then we will open it up for Q&A. Our fourth quarter results were strong and they capped off a very good year for us. A highlight in the quarter was favorable mortality experienced in our U.S. traditional business, but more broadly it was another quarter in which our global operating model worked to our benefit and our earnings diversity by geography and product continue to serve us well. Operating EPS was $2.99 per diluted share including $0.55 in unusual tax related benefit. Results were strong with or without the tax boost, full year EPS was $9.12 including the tax related benefits that I just mentioned. Fourth quarter reported premiums were up modestly as foreign currency fluctuations and the Pacific Life retrocession transaction to be recently announced had meaningful effects. Excluding those effects premium growth was 9% for the quarter and was 8% for the year, good indications that our top-line growth remains quite healthy. Underwriting experience on a global basis was slightly favorable for the quarter as the U.S., Asia and EMEA were all favorable offsetting continued weakness in Canada. While I am very pleased with these results, I remind everyone that ours is a long-term business and the results this year reflect much hard work over the years to expand our footprint and bring innovative solutions and innovations to clients around the world. And I am also pleased as I think about the very active year we had in terms of successfully executing on transactions that will add through operating financial success in years ahead, including block acquisitions and capital generating transactions such as the embedded…

Okay. I will give a quick synopsis of the financial results and then provide our intermediate term guidance and some additional forward-looking thoughts. We reported operating income of $208 million this quarter or $2.99 per diluted share, a 38% increase over the $2.17 per share we reported a year ago. Ignoring the current quarter of favorable tax related adjustments which added about $0.55 per share operating EPS still increased 12%. Reported net premiums were modestly higher quarter-over-quarter despite the effects of the retrocession agreements that Greig mentioned and the foreign currency headwinds. Adverse currency movements reduced current period operating income by about $0.09 per diluted share compared with the prior year. Excluding the spread business our average investment portfolio yield was 4.94% this period up 14 basis points versus the third quarter. Our new money yield was around 4.2% we benefited again this quarter from higher variable items such as bond and mortgage loan prepayment. We did not repurchase any stock in the fourth quarter but we closed the previously announced Voya transaction and then executed the embedded value and retrocession transaction. As Greig mentioned, we ended 2014 with close to 1.2 billion of excess capital compared to 600 million at the end of third quarter. Now turning to our segment results, the U.S. and Latin America traditional sub-segment reported pre-tax operating income of $134 million versus $124 million last year reflecting favorable individual results in both years and improved group results versus a year ago. Individual mortality claims this quarter benefited from more favorable frequency and severity relative to what we expected. Premiums were down 1.9% due primarily to the effect of the retrocession agreement. Absent that premiums would have been up 8.5%. That retrocession transaction was retroactive to October 1 and reduced premiums by about $130 million but…

So in summary, we're very pleased with our financial results and feel good about the overall business momentum as we look forward. And we expect to continue to produce an attractive EPS growth rate over the intermediate term supported by attractive capital management. Business dynamics for us on a global basis remain positive as clients face numerous regulatory and environmental challenges and we’ve an effective solution set to offer to them. 2015 could provide some notable headwinds in terms of foreign currency variable investment income and interest rates, but we still believe our intermediate term guidance targets are achievable over this period. Thank you and I appreciate your support and interest in RGA and with that we’ll take any questions you may have.

and:

Thank you. [Operator Instructions] And we'll take our first question from Jimmy Bhullar with JPMorgan.

I had a couple of questions. First, if you could talk about just to what’s going on in the Canada business, so you've had weak margins in the last several quarters. So anything that you found there in terms of a pattern whether it relates to frequency severity or business written in a certain vintage year? And then secondly, thoughts on the timing of completing the 300 million share buyback program, should we assume that absent any additional large deals that you would complete the program through a program in 2015?

All right let me take the first one and I’ll turn it over to Jack for the comment on the second one Jimmy there. In Canada the excess claims are all attributable to what we call large cases a $1 million and over type cases. And while this appears to be a fluctuation it’s been going on pretty consistently throughout the whole year and if you recall sort of four or five years before that were extremely good years in some cases and good years in all of those five years. At some point, you have to begin to question whether because this is a sort of a steady grip whether it is a fluctuation or whether this is something that’s going to continue that in other words the five year period prior to that may have been a period of unusually good experience that we shouldn’t expect going forward and we should expect more of a return to normal, but it’s a little bit difficult since we’re only talking about a handful of cases each quarter. It’s not a large number of policies that are making up this trouble for us, it’s an excess in cases or something in the quarter. And so until we get a little bit more perspective it’s hard to tell exactly where the mark should be, but it doesn’t look like it’s as simple as saying it’s a fluctuation but it’s not clear to exactly whether this is an extended bad patch or it’s a return to more of a normal patch.

Yes, I'll comment. This is Jack on the buyback, and maybe a few data points would be helpful. Our best estimate is that we will generate about $350 million or so of excess capital that would be a capital generated above and beyond what we would typically need just to back our current business and on a generic business flow. So that’s one data point and we also commented we ended 2014 with about 1.2 billion of excess capital. Now some of that will we put to use when we close the Aurora transaction, so maybe you can think of it ex-the Aurora transaction as about $1 billion of excess capital. So we don’t want to continue to just stockpile capital, so we always look at opportunities to deploy both into the business and also then to take out some of our shares. I think 2014 was a great example where we were able to execute on both fronts and that would be our desire in 2015. But certainly if we didn’t see any opportunities or something we aren’t able to execute on any M&A or block deals into the business you can expect us to take advantage of this $300 million authorization and begin to take out shares.

And lastly could you just discuss what your energy exposure in the investment portfolio?

Yes, in round numbers we’ve got roughly 2.1 billion of exposure most of that is in investment grade I think about 180 million of that is non-investment grade. So we feel we’re in a pretty manageable position there.

And we will now take our next question from Steven Schwartz with Raymond James & Associates.

I want to talk a little bit about taxes Jack, what years are still open?

We have closed through 2010, so 2011 on would be open still.

Okay. And the guidance that you gave for the tax rate, the 34% that did not assume an extension of the AFE again?

No it does assume an extension of the AFE.

It does assume, all right, okay. Okay, honestly that’s really all I had. Jimmy got the others. I appreciate it.

And our next question comes from Sean Dargan with Macquarie.

I wanted to follow-up on the retrocession agreement. You did give up quite a bit of premium, but I’m just wondering what the characteristics of this block are in terms of volatility. Are you modeling, I guess, lessened earnings volatility from mortality without that block in your results?

Volatility that block is aged and seasoned, it should be no more volatile than the rest of our business maybe a little bit less even, but it is as we’ve spoken about it before a period of ’99 to ’04 it’s essentially low returns. So RGA is a Company that has a lot of mortality risk of course and so a lot of our capital is attributable to it. And we don't use mortality as a diversifier we’re basically constrained by mortality. In other ways we have a higher capital backing mortality pound-for-pound than companies who have more asset risk and other types of it. So this was a nice transaction from both sides point of view. We’re able to take the capital away and the reason it doesn’t affect earnings very much is we were earning a low return based on the large amount of capital we had associated with it. And we will be able to redeploy that capital with more effective rates overtime and increase the earnings rather than to see a fall off.

And are there other counterparties, do you think, that would be amenable to similar transactions?

Well we will certainly be looking for doing that once again if we can find the right situation.

Okay. And just one more question about the $0.30 per share headwinds from FX. Can you give us a little sensitivity as to what buckets that will impact between Canada, Europe and South Africa, and Asia-Pac?

Yes. Well as you can imagine our estimation is that dollar will progress against most of the currencies in which we write business, but the biggest impact maybe the biggest concern is versus the Canadian dollar. So I think probably 40% to 50% of what we’re projecting in terms of headwind would related to that currency and the rest reasonably well spread amongst the primary European currencies the euro and the pound sterling and then a smattering of currencies in Asia as well.

[Operator Instructions] And we will take our next question from Ryan Krueger with KBW.

First, I had a question on interest rates, the $0.30 EPS headwind you mentioned. I think last quarter you mentioned something closer to $0.10. I know interest rates there are generally down since then, so I just want to better understand it. Is the change from around $0.10 to $0.30 all driven by the recent declines in interest rates this year or did you also refine your estimates more, I guess or is something else going on?

Yes, Ryan I think that $0.10 related more to 2014 versus the prior year. So 2015 versus ’14 it’s a number of things. We benefited from broadly speaking what we characterize as variable income and that includes bond make wholes and commercial loan prepayments and some other alternative investment pass throughs and that sort of thing and we just think 2014 was a year where a lot of that fell together and you saw our investment yieldhold up very well, we don’t expect the benefit nearly as much from some of those kind of ancillary effects in 2015. And because of what’s happened with the yield environment we just expect absent that other headwind associated with just lower reinvestment rates. So you combine all that and our best estimate is around $0.30 as we suggested.

And then the $8.30 normalized EPS number for 2014 in that you had already excluded some of that variable investment impact.

Yes.

So should I think of that $0.30 drag relative to the $8.30 or relative to a higher number?

Yes you can think of it relative to the 8.30, you're absolutely right we did call out some of the impacts of variable income to normalize 2014. But you can look it as we pulled out some of the more extraordinary impacts. We still think there will be additional headwind associated with variable income even after that.

Okay, got it. And then if I take all of this together, the $0.30 headwind from interest rates, $0.30 from FX but also the meaningful benefit from the Voya and the Aurora transactions that you cited, I know your guidance is a bit longer-term. But do you think you can still achieve the 5% to 8% type EPS growth in 2015 relative to the normalized 2014 number?

Yes, well certainly that’s one way to look at it, and that’s one reason we tried to normalize 2014 that we didn’t want investors to think that and in the same way if you look at last year where we had a difficult year because of the situation in Australia than that kind of -- there is a part the run rate sort of argument. And this year we had a positive result and we wanted to kind of do the same thing to look to encourage investors to look at it on a normalized basis and that’s what we tried to do. So I don't think it’s inappropriate to look at it the way you’re suggesting.

And our next question is from Dan Bergman with UBS.

Just a question on excess capital, I know in the past you’ve talked about a cushion I think it was around $300 million that you’d like to hold. I just wanted to see if that still the case, or should we think about that full a 1 billion kind of post the Aurora deal as available for the right block acquisition. And just in general, any thoughts around what’s the largest deal you would consider, given your capital position and free cash flow?

Yes I think we’re often asked that sort of question, we would characterize that entire billion dollars as available if the right deal came along. Now having said that, we have commented in the past that our goal is to keep a cushion and we’ve indicated 300 million is a good estimate. I’d say as we become a little bit bigger we think of that cushion in a little stronger terms, in other words I think now we look at it more as 300 to 500 as a nice cushion, but having said that, we would eat into that cushion if the right deal came along, because we have a fairly predictable generation of both capital and earnings model and portfolio of risk that really grows off a fairly predictable earnings level so we’re not reticent to eat into that cushion because we can rebuild it fairly predictably.

And then on a related topic, I just want to see if you had any updated thoughts on the block acquisition landscape, just both in terms of the number of deals you’re seeing in the market and level of competition. And I was just curious whether there is any impact either positive or negative from the recent decline in interest rates on the market and kind of the likelihood of your completing a deal? Thank you.

I would say the block acquisition market looks about the same at this point this year as it did last year, you never can predict which things will come our way, the competition is always present and it’s always meaningful. We think we have some advantages in some situation and some disadvantages in other situations. But it's really hard to predict these things, but I would say that in basic response to your question the pipeline of opportunity set looks pretty good. In terms of say Solvency II capital motivated transactions in Europe that looks like a pretty attractive landscape as well at the moment.

And our next question comes from Mike Zaremski with BAM Funds.

A couple questions on the guidance, to the extent you can comment or maybe just comment on the issue separately. Does the operating earnings guidance take into account year-to-date changes in foreign currencies? Also, I was curious if it assumes mortality in Canada normalizes. And maybe you can also comment on how you are thinking about Australia in 2015. Thanks.

Yes this is Jack, maybe I can comment there. The currency situation is tricky and it changes daily as you know. So we established that guidance early this year, currencies have actually moved again so it’s a little bit more since then. So rather than continuing to change our expectation, it’s just hard to call that guidance. So you could put a bracket around that $0.30 it could either way from there and as stated it’s moved again so it’s a little bit in the last couple of weeks or so.

With respect to your other comments Mike, yes I think the 5% to 8% guidance is for us a reflection of how we believe this portfolio of different businesses by geography and product line will perform, some will do better than expected, some will do worse than expected, but we have enough things going and enough momentum that we are pretty confident in it. In terms of Canada itself like I said we are looking at this situation and at some point you have to say that this continual stream of large cases in excess of what we had expected year ago say and what we had actually experienced for the prior five years will be something we might have to start back bringing to our expectation. In terms of Australia, we do expect a modest step forward in terms of core operating results say before expense allocations and things like that in Australia in 2015 we are expecting them to carry a little bit more of the expense overhead loan, but to put that sort of internal. So Australia will take a small step forward as we expected to overtime.

[Operator Instructions] And we’ll now take a follow-up question from Ryan Krueger with KBW.

I just want to see if you guys could comment a little bit on the pricing and competitive conditions, I guess, specifically in the US and how they have changed maybe over the last year or so?

I’d say the pricing environment is okay in the U.S. it's not great and it's not bad, it’s just okay. It’s maybe a little bit more competitive than it was three or four years ago from our perspective. I’m not sure everybody would share that assessment, but that’s how I think we would probably characterize it. The market continues to decline a bit in terms of the overall session rate and so that naturally feels I think a little bit of competition but we’re very pleased with our U.S. performance in this type of market given some of the characteristics of what we see out there and we’ve a good team in the U.S. we’re happy with it.

And then the last one, can you just talk about how your long-term care business performed in the quarter and then do you need to revisit any of your assumptions given some of the reviews I guess at some of your clients that are going on right now?

Yes the long-term care performed pretty much as expected. It’s early days still we haven’t been in that business long enough to develop a lot of actual claims coming in, but it’s if anything may be a little bit to the good side, but it’s hard to draw any conclusions yet. We’re very comfortable with the long-term care. We have avoided a lot of the problems that have caused difficulty, we haven’t done any unlimited benefit type business or limited pay business and so some of the things have caused severe problems in the marketplace we came in after that and actually steered away from those issues. We’re probably expecting another predictable year in 2015 based on what we’ve seen so far.

And your next question is from Tom Gallagher with Credit Suisse.

It’s Joe for Tom Gallagher. I just wanted to ask a quick question related to interest rate and FX headwinds that you guys mentioned. Can you talk about some management actions that you're taking to offset that drag perhaps hedging activities in terms of FX or changes in investment strategies that would allow RGA to capture more NII to offset the lost income perhaps from prepayment and low rate? Thanks.

Yes maybe -- this is Jack, I can comment on the FX situation. We're really – it’s difficult to hedge foreign currencies in a way that really protects the U.S. GAAP earnings stream, so we only hedge significant net investment positions and we don’t have that many, we have a fairly significant position against the Canadian dollar and somewhat less so against the Aussie dollar and some of the other currencies now. So we’ve got a fairly broad array of currencies in which we write business, so there’s some natural hedge there now as the U.S. dollar is advancing against all of those. It doesn’t provide much protection but sufficed to say we don’t try to hedge the P&L impact to any meaningful degree that’s really hard to do. Now on the investment front, it’s kind of a difficult call so we don’t want to be in a position where we’re guessing exactly what’s going to happen in terms of the fixed rate markets and that sort of thing. We try to come up with a diversified portfolio to provide some protection, but we don’t try to artificially immunize some of the investment position, so it’s not like we’ve overlaid a lot of protection against that investment portfolio.

And we have no further questions at this time.

Okay. Well thanks to everyone for joining us this morning and we’re certainly here to respond to any questions should anything else come up, just give us a call here at our offices in St. Louis. And with that, we’ll end the fourth quarter conference call. Thank you.

This concludes today’s conference. Thank you for your participation.