Good day, everyone. Welcome to the Reinsurance Group of America's Second Quarter 2020 Results Conference Call. Today's call is being recorded. At this time, I would like to introduce Mr. Todd Larson, Senior Executive Vice President and Chief Financial Officer; and Ms. Anna Manning, President and Chief Executive Officer. Please go ahead, Mr. Larson.

Thank you. Good morning, and welcome to RGA's Second Quarter 2020 Conference Call. With me this morning on the call are Anna Manning, RGA's President and Chief Executive Officer; Alain Néemeh, Chief Operating Officer; Leslie Barbi, Chief Investment Officer; Jonathan Porter, Global Chief Risk Officer; and Jeff Hopson, Head of our Investor Relations. We will discuss the second quarter results after a quick reminder about forward-looking information and non-GAAP financial measures. Following our prepared remarks, we'll be happy to take your questions. Some of our comments or answers to your questions may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ materially from expected results. Additionally, during the course of this call, information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation, quarterly financial supplement and website for discussion of these terms and reconciliations to GAAP measures. And now I'll turn the call over to Anna for her comments.

Thank you, Todd. Good morning, and welcome to everyone on the call. I hope you are all well and staying healthy. Let me take a moment to express my heartfelt sympathy to everyone who has lost a member of their family or friends, and to all who are suffering from the devastating economic consequences of this pandemic. The health and safety of RGA's employees and their families continues to be a top priority and I would like to express my ongoing appreciation for their dedication and commitment to ensuring that our global operations continue to run smoothly and productively. Throughout the quarter, RGA teams provided uninterrupted and seamless services and support to our clients. We shared our expertise and knowledge through numerous webinars, virtual meetings and published articles, all of which were well received and much appreciated. We are proud of these ongoing contributions to thought leadership during this crisis. Turning to the quarter results. We reported adjusted operating EPS of $1.36 for the quarter and are pleased with these results in the context of this pandemic environment. Specifically reported COVID-19 claims in the quarter totaled $161 million, of which $128 million were in the U.S. adjusting for cause-of-death reporting lags and IBNR. Total COVID-19 related claim costs in the quarter are estimated to be $300 million globally, of which $240 million were in the U.S. individual mortality business. The remaining $60 million claim costs were mainly in the U.K. and Canada. COVID-19 claims outside of the U.S. individual business were in large part offset by favorable morbidity and non-COVID-19 related mortality experience. We have revised our mortality model assumptions and scenarios to reflect our own emerging experience, updated information and data on the pandemic and in consideration of the ongoing uncertainty on the future path of the virus. These…

Thanks, Anna. I will review the financial results, make some comments on investments in RGA's capital and liquidity position. Beginning with consolidated premiums, we reported premium growth of 1% for the quarter, our organic growth on a constant currency basis was approximately 2%, down from the mid- to high single digits of prior periods, reflecting in part a temporary slowdown of growth in Asia markets from the lockdown actions as well as expected reduction in Australia. Turning to the segment results lifted on Slides 6 and 7 of the earnings presentation. Starting with the U.S. segment, the U.S. and Latin American traditional business was negatively affected by excess individual mortality claim cost of approximately $240 million. We believe that the excess mortality is related to the COVID-19 based on our analysis of emerging data, specifically, a significant amount of the claims this quarter have been reported with COVID-19 as the cause of death. And we assume a similar percentage across the remaining claims where we did not have a known cause of death yet. The majority of excess claims were concentrated in policies over the age of 70 and policies underwritten more than 15 years ago, which are consistent with the wearing off of underwriting selection and the potential for more comorbidities. And we also saw the highest mortality ratios in states that recorded the highest general population COVID-19 desk, specifically in New York and New Jersey. Mortality ratios in those states were significantly elevated when compared to other states. Our conclusions are also consistent with CDC reports of significant levels of excess death in the quarter that indicates that the vast majority of these are believed to be COVID-19 related. Also in our U.S. traditional segment, both our U.S. group and individual health lines of the business reported results…

Thanks, Todd. This morning, I'll provide an update on our assessment of the potential future impact of COVID-19 on our global mortality businesses. As Anna mentioned, our estimated mortality claim cost for each general population death has improved, but this is expected to be partially offset by a higher possible range of general population deaths, in particular in the U.S. Let me walk through this in a little more detail. Recall last quarter, we provided an illustration of the potential impact of COVID-19 on global mortality claims based on a scenario, which included 100,000 deaths in the U.S. At that time, our estimate of the extra pretax mortality claim costs for this scenario was between $400 million and $500 million. We have updated our model and for the same number of general population deaths, we are now estimating a range of $200 million to $300 million pretax of additional mortality claim costs, a decrease of approximately $200 million. These figures are shown on Slide 13 in the presentation material. Several key assumptions that are used to estimate the impact of general population deaths on our insured book of business were updated based on our own emerging claims experience as well as reviewing multiple other data sources. The most impactful model change that drove this reduction in estimates is a larger assumed selection factor between insured lives and general population lives. In other words, we expect that the COVID-19 related mortality of individuals who own life insurance will be lower than we had previously assumed. We also made other refinements, including applying country-specific age and general mortality rates to our insured book. These impacts were less material, some resulting in increases to future claims and some resulting in reductions. Overall, we believe that these updates better calibrate our models to the…

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

[Operator Instructions]. And we'll take our first question from Humphrey Lee from Dowling & Partners.

Todd, in your kind of prepared remarks, you talked about -- you didn't really see much both on longevity offset from COVID-19 this quarter, but expect that to emerge in the second half. It's the kind of -- I think last quarter, you guys talked about 10% as the potential offset is still there. Is this kind of how you think about the potential benefit? Is this still the right kind of number to think about, given the revised kind of downward kind of earnings sensitivity?

I sort of missed the last part of your question, Humphrey. But yes, we didn't see a lot in the first half of the year because there's reporting lag on that business because you have to go from the underlying scheme to the insurance come then ultimately to us. But as far as the potential offset, we still view that so the 10% range as far as an offset to the mortality is still the reasonable estimate of how to look at it.

Okay. Got it. And then Anna, in your remarks, you talked about the kind of the deal pipeline in the U.S. for asset intensity become more competitive, but I don't see opportunities in Asia and other countries. Can you just maybe let a little bit more in terms of kind of your outlook for potential capital performance in the second half of the year?

Sure. I'll just say and reemphasize, overall, we see a generally healthy pipeline. I'm going to ask Alain to provide a little bit more color on the pipeline and the competitive environment. Alain? Alain Néemeh: Sure. Thanks, Anna. I think, Humphrey, in normal times, the deal process is fairly lumpy. And I think that applies here as well. Generally speaking, we are, as Todd mentioned, seeing a very healthy pipeline. Although we've got different levels of competition at different times. I think, generally speaking, the Asian business, as you alluded to, I think, is pretty strong. And while in the U.S., there's a certain level of competition. I wouldn't diminish the fact that we do have opportunities and we're looking at them. Similarly, in EMEA, I think there's a reasonably healthy pipeline as well. But I want to reiterate, in these times, I think we're going to see some lumpiness in terms of closing those transactions.

Yes. And let me provide some additional comments, if I may, Humphrey. We've shown in the past that we navigate periods and pockets of changing competition. We do that by focusing on opportunities that play to our sweet spot, like our capital-efficient solutions. We're very good at those solutions. And we've had a very good quarter in executing on those transactions. And then as I look at this low interest rate environment, if we're facing this for a protractive period of time, we'd expect to see greater demand for those solutions and for general product innovation as well as continuing demand for innovation in the underwriting process. All of that really plays to our strength, our strength in product development and underwriting. So I would echo Alain's comments. They're somewhat lumpy, but we are remaining very focused, and we are finding 2 sweet spots, where we do have an advantage.

So do you think the current environment will make the lumpy -- will maybe more lumpy just given the current environment? And present a headwind to kind of your premium growth outlook in the next couple of years.

I'm sorry, I didn't catch the last part of that question. It was about the lumpiness increasing? Do we expect lumpiness? Is that the premise of your question?

No. So like -- so do you think the current environment meant to make the lumpiness worse? And so that effect materially impact your, kind of, premium growth outlook?

The lumpiness, we're referring to our in-force transactions. Our premium growth is in large part driven by our underlying organic flow business. Because these in force transactions are in large part of fee-based or spread-based transactions, although we do mortality blocks as well. In terms of the organic premium growth, I think it is a reflection of the temporary environment, the lockdowns in most parts of the world, would expect that as we come out of the crisis to pick back up, potentially even stronger with some pent-up demand. Does that address the question you were asking?

Yes.

And we'll take our next question from Andrew Kligerman with Crédit Suisse.

I'd like to start on APAC. I noticed in Slide 13 that there's no mortality claim cost sensitivity, and I'm wondering if I should take that such that you don't -- and you anticipate a very low mortality level from COVID-19 APAC. And then part of the question, it looked like Australia was breakeven. And Todd said on the call that the number was better than expected. So should we think that this group business profitability will revert backward or you'll start to see losses again? Or is this a good run rate?

Andrew, I'll turn the first question over to Jonathan, your mortality question and then ask Todd and Alain to address to Australia-specific questions. Jonathan, can we start with the mortality question, please?

Yes. Yes. So we have provided, as you noted, the calibrated impacts for the U.S., the U.K. and Canada on Slide 13. At this point, we're estimating that the 3 of those countries combined will account for about 90% of our COVID-19 mortality claims costs. And that's why we didn't break out all of the other countries. So I think your assumption that our current projections assumes that's the impact of a relatively modest or small in Asia is correct. And just to add, that's a function of both our exposure amount as well as the demographic distribution of our business and the efforts and the relative mortality rates in some of those countries.

I see. And then on -- sorry, go ahead, Todd.

Yes. Andrew, this is Todd. Yes. On Australia, we are very pleased to see the results that we've seen through the first 6 months, given what we're seeing in the last year or 2. But I think it's too premature to suggest that we've turned the corner. We're continuing to manage the in-force very closely managing claims, very closely. And it's good to see the group performing better, but the individual disability is still reporting some losses. So we still need to continue to keep an eye on the entire block of business, and we'll continue to reform rate increases to the extent we can. So in summary, it's good to see the results so far, but I'm hesitant to say that we turned the corner. We still need to keep an eye on it going forward, and we still could likely see some volatility.

I see. And just a quick follow-up. In Slide 14, you cite an additional 200,000 U.S. general population deaths starting in the 3Q. And I'm wondering, is that just kind of a random scenario? Or is that what you think is likely to occur? And if so, what are your underlying assumptions? Alain Néemeh: Yes. Let me take that one. So again, because of the uncertainty that exists around all of the aspects of COVID-19, we don't think of just one scenario. We think it of across a range of outcomes that we're considering the $400 million to $600 million scenario that was listed here with the underlying assumption. It's a range that we think is possible or reasonable, but no one including ourselves can really predict ultimately where it's going to end up. So it was meant to provide an illustration of a possible outcome from our perspective.

Which kind of leads me to wonder like 200 is a very big number moving forward. Any assumptions that you're assuming like a big second wave of COVID-19. Is that right? Alain Néemeh: Yes. I mean -- so again, we look at multiple sort of views on kind of second wave, slow burn, various conditions. And really, from our perspective, the timing of that or the incidence of whether it's a second wave or not, it doesn't make that much difference. It really is ultimately the number of deaths that occur that drives our results. So we consider multiple options, but given kind of where we're at now and the potential for what can happen in the future, again, we feel that this is a scenario at the possible outcome.

Yes. This is Todd. Maybe just to add onto that real quick. It is very difficult. I don't think anyone can predict the ultimate outcome, everything that's going on and the uncertainty. And that's why we did provide. So you can sort of take your own view on the ultimate deaths we provided. These are estimates at this point, what every 10,000 general population best means as far as potential claims activity.

Got it. Hopefully, that's conservative like your original sensitivities.

We'll move on to our next question from Jimmy Bhullar from JPMorgan.

My first question is just on how you define excess capital. It's odd when companies talk about excess capital, they'll be using equity at the same time. So maybe -- and you've mentioned an excess capital number in the past as well, but haven't given a lot of clarity on how you compute the numbers? So that's the first thing. And then relatedly, how do you think about deploying the capital, if let's say, COVID ends up being a manageable risk from a mortality standpoint and credit is sort of in line with your expectations. Clearly, then you've got more capital to the way than you would have -- then would have been absorbed by these things. So how do you think about deploying that? And when do you start to become more proactive and starting to deploy?

Right. So I'll ask Todd to address your first question on how we define excess capital. And I'll come back and provide some thoughts on your second question around capital management. And also ask Todd, if he has any additional comments to provide. So Todd, can we start with the definition?

Yes. So what we do, first and foremost, we need to make sure all the various operating companies around the world have adequate capital to meet the local regulatory needs. And then also, we look at our own economic capital models that we used internally to look at various levels of capital and also that helps form our view of some of our underlying risk limits. And then we also pay a lot of attention to the rating agency models because ratings are very important to us as we want to be viewed as a very solid, long-term counterparty to our clients. We're in a long-term business. So what's important for them, the U.S. is a very strong counterparty. So looking at all those things and maybe tilted a little bit towards the rating agency models, we want to make sure we'll always appropriately capitalized to maintain our ratings and keep our operating companies where they need to be from a local perspective.

And then on your second question, I'd start by saying that during this crisis, we continue to work on opportunities where we've been active. I fully expect us to continue to be active, but we're balancing that with being prudent. To -- so that we do remain well positioned to weather through. Now in terms of when does that balance potentially start to shift, I would say we would need certainty and clarity around the virus, around the economic impacts and then some stability and outlook as well. And as we look out, we don't expect that to happen in the short term. So we'll continue along the way we have been since this crisis started, we're continuing to support our clients, actively engaged, haven't seen any change in that activity if anything perhaps pick up a bit. And we will be very prudent and look for good long-term opportunities and balance back against the continuation in the environment. Todd, is there anything else that you would like to add?

No, I think you covered it, Anna, thanks.

And maybe I'll just ask one more on the mortality that you've seen in your -- primarily in the U.S. business this quarter. Have you looked deeper into the average age and other factors of the claims to sort of discern if -- clearly, all the claims are pulled forward, right? At some point, every claim comes through in the Life business. But if you try to determine how many of them are maybe pull forward by like a year or 2 years versus 10, 15 years. And obviously, the older the population, the better -- the more recent the pull forward is. So -- but any comments on how that affects your few of earnings over the next couple of years positively or negatively?

Yes. I'll answer and then I'll ask if Jonathan or Todd would like to add. The question about do we think any of the claims are accelerations of the future period claims? Very hard to answer that question, very hard to estimate that at this point. We think it's certainly possible that we have some acceleration of claims, given that is -- that a very large part -- the majority of our extra deaths were concentrated at age of 70-plus and in particular, 80-plus. But -- and at the end of the day, obviously, people can only die once. But at this point, it's very difficult to put a figure on it as to how much of that we would have expected to see over the course of the next few periods. Jonathan or Todd?

Yes. No, I think that's exactly right, Anna. And that's, again, just another reason why for our extra mortality projections on a go-forward basis, we haven't assumed acceleration, consistent with what you said.

Yes. The only thing I would add is, I view -- so what we're going through now is a more temporary period of elevated claim activity. And when we get through that, we may be able to see that some of it was acceleration, but that being said, I think the overall earnings power of the organization, probably including the traditional mortality business, we'll be intact when we get to the other side.

Yes. I would actually say to the extent that the claims are pulled forward from 1 or 2 years, and the present value of future earnings is lower, but the earnings next year would actually be higher, not lower, right? Obviously, that assumption -- that assumes that the claims are, in fact, pulled forward 1 or 2 years. But -- and -- but if that is true, then all else being equal, your earnings should be better next year than they would have been otherwise. Correct?

Like we said, it's hard to gauge to that at this point.

And we'll take our next question from Ryan Krueger from KBW.

I had a question on longevity in the U.K. I know you reiterated the rough assumption of about a 10% offset from longevity to your overall more cloudy risk, but given that there has been not much of your longevity risks in the U.K., where the deaths have been pretty significant, I guess can you -- would you expect, I guess, in the near-term, the more elevated longevity offset given that dynamic?

Ryan, I'd say difficult to categorically state, yes, but we think it's likely to be the case given what we've seen in the U.K., but as Todd mentioned earlier, with the lags, we haven't -- we haven't seen any of that to date, and it will be more our situation going forward.

Got it. And I guess, could you give any detail, maybe just focus on the U.S., what -- how typically you'd expect for insured versus population mortality? And then how you think it's coming through for COVID relative to kind of the normal difference between those?

For that question, I'm going to turn it over to Jonathan.

Yes. Yes. So our go-forward projections. What we're assuming now across most of the markets we're in, is that the difference between insured and general population for COVID-specific deaths will be basically the same or equivalent to what we're seeing just for all-cause mortality. So that's the assumption that we weren't sure when we determine our model last quarter, just was a lack of data, but now we're more comfortable applying that full differential that we would otherwise not see for all-cause mortality. Again, based on early experience as well as information that we're looking at extremely.

And we'll take our next question from Erik Bass from Autonomous Research.

Just a follow-up on the longevity experience in EMEA. And I think this is something you've seen as a favorable trend for a bit now. I was hoping you could maybe quantify the amount of the benefit or catch up this quarter? And then talk about what is the typical lag, so that the experience you're seeing now kind of when is that -- sort of when was it actually incurred? And kind of how long does it take to come through your results?

Yes. Let me ask Todd to respond to your question.

Okay. Yes. You're right, Erik. Over time, there's been some lumpiness in the U.K. primarily the U.K. longevity business, given we get catch up and reporting and that type of thing. So I think you need to look at it a little bit more over a longer here period of time. We still think the run rate that we've been mentioning for the past couple of quarters, at least, for total EMEA in that $60 million to $65 million range is still sort of the appropriate run rate to target in on. So that really hasn't changed at this point. It's just we do see from time to time of the client catch up. Unfortunately, they're usually to the positive because it's usually getting updated information and truing up the inventory and those types of things. So I don't have the exact quantification of the specific true-up for the quarter. But again, I'd tie back to looking at that total EMEA run rate of that $60 million to $65 million.

Got it. No, that's helpful. I mean, I guess, in general, the trend has been pretty consistently favorable, I think, relative to your pricing assumptions. What do you see is driving that? And does it seem like something that may continue?

Well, I would offer up -- part of the answer may be that the temporary slowdown in mortality improvements and how they're impacting, obviously, in the other direction, the longevity business there. It could be part of the region. It's very difficult, Erik, to really provide very detailed attribution. It's just that when we price long-term business, we have to set the long term assumptions and they don't necessarily come in, lock step smooth. There's some -- sorry, there's some volatility, both short term, intermediate term, but we're very comfortable with the performance of that business. And as Todd mentioned, and as you alluded to, it's been performing favorably for a good period of time?

And then if I could just switch to Asians. Curious about the near-term organic growth outlook. And also if you could talk about any potential impacts from some of the uncertainty in market disruptions in Hong Kong?

Let me ask Alain to address your question, if I may, Alain. Alain Néemeh: Yes. Thanks, Anna. I think as you pointed out, there has been quite a bit of disruption, particularly in Hong Kong over the last year, even pre-COVID. So I think we can expect that the near-term might continue to be a little bit below our normal run rate, but we fully expect over the course of, say the next year or more that our new business would ramp back up to expected levels.

And we'll take our next question from Tom Gallagher from Evercore.

First question. Do you think the pandemic will impact session rates at all for the primary life insurers? Are you seeing any changes there? And also, do you expect any impact on the terms and conditions on both new treaties and in-force to the renewals in the wake of what's happened here? Or does that continue to be pretty stable?

I would respond by saying it's too early to really gauge what will happen to fashion rates. I could certainly offer up that the value of reinsurance has been highlighted during this pandemic, and so expect that both growth in the underlying insurance market itself. Consumers seeing the value of insurance as well as our clients, the life insurance company, seeing the value of not just risk transfer, but also other reinsurance solutions. So yes, I think we could see that. I would expect to see that, but it's purely to say that we -- certainly on the session side that we're seeing it on the session side. Perhaps I'll also ask Alain. Any further thoughts that you would like to add? Alain Néemeh: Yes. I think you're right, Anna. As you mentioned, there's really been no impact on session rate so far. And at this point, no reason to believe that there'd be any downward pressure on that. In terms of terms and conditions, again, probably too early to tell. But at the end of the day, I think we are reinsuring a life and whether that life dies through the course of the flu or a pandemic, I wouldn't see us and certainly, insurance companies on the front end excluding that. So I wouldn't expect any significant changes in terms and conditions.

Okay. And then my follow-up is, I guess, is kind of a follow-up to what Jimmy asked before about the way you're thinking about capital adequacy, risk in force. Does this cause you to reconsider how you're viewing just overall enterprise risk relative to the capital you hold given the equity raise here? I guess just a related question, would you consider materially growing some offsetting risks to mortality, whether that's adding more longevity or morbidity risks to the book as a way to better balance it out to, call it, lessen the pandemic net exposure that you would have? Or how are you thinking about that overall? And how do you really thought the strategy, just given that you ended up raising equity?

All right. Let me take parts of those questions. So let me address the raise equity question. And then I'll ask Jonathan to speak to your capital questions. So specifically to why we raised equity. I'll start by saying, when we looked out at the crisis, we couldn't see a quick end. We felt that pandemic would likely continue until there were therapies or treatments or vaccines and the timing of those vaccines and therapies were highly uncertain. And in addition to the virus, the picture was developing on the impacts to the global economies on just how much damage was being done. And on the uncertainty around how, when and over how long a period of time, you would see a recovery. So facing that, we felt it was prudent to increase our capital buffers because we're in a long-term business and strength and stability are important for protecting the valuable franchise we've spoken about this morning and in making sure that we're well positioned to pursue these attractive opportunities growth, long-term value opportunities. As I look at today -- as we look out today, not a lot has resolved and we continue to believe that increasing our buffers was the right decision, was a prudent choice, and it's consistent with how we've managed shareholder capital over the long term. Look, we're not at the end of this. And I'd end by saying, I think it's premature to draw any conclusions at this point. And maybe with that, I'll ask Jonathan to address the rest of your questions.

Yes. Yes, Anna. Thanks. So from a capital perspective, and I'm still quite comfortable with the level of required capital that we have set up from an economic basis to handle account for pandemic exposure. So no concerns there. And then diversification, I think you're asking about diversification strategy. I guess I would say that over -- over the last several decades, I think we have been employing a strategy diversification. And looking at things like don't get any morbidity in different geographies as you point out, so I think that has served us well in this environment. And both -- I guess, the experience we're having now, I'm sure we'll factor into our thinking on a go-forward basis too.

And maybe I can add one other -- maybe I can add just one other thought, which is from time-to-time, we have looked at buying some type of pandemic protection, be that a cap bond or some other instrument. What we always found that was to get a meaningful amount of protection given just the scale of our mortality business. It was hard to find capacity and then the costs were too expensive for the protection provided. So we didn't and continue not to see good benefit-cost options. So the way we look at it, and as Jonathan highlighted, is, it's by using diversification, it's by managing risk appetite. That's the risk framework through which we look at our business. And we will continue to do so going forward.

Our next question comes from Dan Bergman from Citi.

To start, I guess, excluding the capital raises, it looks like excess capital was roughly flat quarter-over-quarter. So looking forward, if buybacks and block reinsurance deals remain minimal and premium growth range around the current level, is the second quarter earnings a decent proxy for the level of earnings you'll need to generate to keep excess capital flat going forward? Or are there other adjustments or factors we need to be thinking about?

Yes. Todd, can I ask you to address the question, please?

Yes, Dan, I don't think that's -- it's probably not a bad way to look at it. But I think if you look out at what our earnings power can be ex-COVID for the remainder of the year. And then we went through what our estimate is over time for COVID, and you can estimate how much of that would be in the second half of the year. I think we've had the earnings to fund organic growth as well as fund the dividend and then the sort of unknown would be how much capital we potentially deploy into any in-force transactions that look attractive?

Got it. That's really helpful. And then maybe just a quick one on corporate. Should we expect the loss there to remain favorable to prior guidance near-term with travel and maybe some other expenses remaining depressed? Or is that prior kind of quarterly loss guidance, still a reasonable expectation?

Yes. So for now, I would say the $25 million loss on average per quarter still reasonable. We did have a little bit additional reduction in the loss in the second quarter here. But I think we'll be maybe hopefully coming a little bit under that as we go forward, but I wouldn't provide sort of an updated average loss at this point. But some of the items like travel should maintain a lower level through the -- obviously, through the rest of the year.

Our next question from comes from Kostas Agrogiannis from Legal & General.

I guess my personality goals regarding for capital deferment, so I'm going to sense a bit. Regarding the excess capital and ratings, I think you mentioned that you would have expected the COVID-19 losses have been absorbed by the current earnings ability. While the previous capital buffer around $700 million from what I was within from the editing reports, we have maintained the ratings. Is it because S&P has still a stable outlook? Therefore, I'm going back to capital deployment, and I'm kind of asking whether do you expect to have a much worse Q3, Q4 claims experience if you also consider reporting -- the lag reporting?

Think that lag reporting comment was in respect of our longevity business, which we expect should be net positive to earnings. We have -- on our mortality business, we have in all of the incurred claims in the quarter and do not have any lag that would then be felt in the following quarters, if I'm understanding the question. Todd, am I thinking about that question correctly?

So I think that's right. Based on your answer, I agree -- or your comments, I agree, but I did not completely get -- hear all the question, it was breaking out for me.

Yes, yes. Kostas, in fact, does that address your question?

Yes. Yes, it does. It was mostly about future capital deployments. In terms of reporting lag -- lag on reporting, but yes, it does address it.

And we'll take our next question from Brian Meredith from UBS.

This is Mike Ward on for Brian. I guess, kind of expanding on that natural hedge phenomenon that we've spoken about in the past. So you mentioned when we've got elevated mortality like this, of course, it comes through in the period that it occurs, maybe there's a little lag, but just kind of wondering, how long does it usually take for that benefit to flow through in the longevity piece? Does it take quarters or years? Just kind of curious how we should frame that thinking about that benefit that offset?

It's closer to the first, which is quarters, it has not lagged for years. Obviously, it depends. We have a number of transactions, and that means the number of clients. And clients have different operations. And then the underlying scheme, the pension schemes themselves also have underlying operational processes. So on average, in general, I think we're looking at it from a few quarters' perspective, not years' perspective necessarily. Todd, correct me or Jonathan.

No, I agree with the comment.

Yes.

Okay. And so that's helpful. So I'm just thinking about -- so you said you didn't have any of that longevity benefit this quarter, but if we back out the $300 million of excess COVID claims, I think that would translate into an EPS for the quarter over $5 per share. And maybe I'm wrong on that, but I'm just curious if you could help us understand or quantify the other favorability that contributed this quarter?

Yes. I'm going -- there were other things going in other directions. So I'm going to ask Todd to give you just some high-level overview of some of the other items to help frame that calculation you just did.

Yes. You need to, in addition to just looking at the, say, the elevated mortality impacts that you could add back. You also need to look at there were some expense savings in the quarter that would need to be added back and adjusted related to travel as well as a significant component of the expense savings related to compensation and within the compensation related to sort of variable compensation and longer-term incentive composition -- compensation type adjustments that we made, given the underlying experience that we're going to see this year, it's going to impact some of those longer-term programs, so we need to adjust. In that, so you need to maybe reduce the mortality savings by some additional expenses? And I'd put the -- maybe the expenses -- a rough number, but maybe it's around $0.50 a share.

And I would add one other thought and that is $300 million is the global estimated cost, $240 million in the U.S., individual. The other $60 million outside of that operation, recall that it was offset in large part due to favorable performance in the morbidity business and other nonmortality. I think that adjusting back up for that $60 million is somewhat aggressive because it would suggest a permanent contribution from -- continuing contribution from that over performance. And although we'd love for that to be the case, that could be somewhat aggressive.

And unfortunately, ladies and gentlemen, that is all the time we have for questions today. I would like to turn the call back over to Mr. Todd Larson for any concluding remarks.

Thank you. Well, everyone, thank you for joining us on our second quarter earnings call today. As always, we appreciate the continued support and look forward to the continued dialogue as we go forward. Thank you very much.

And once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.