May 1, 2012
Executives
Jack Lay – Senior EVP and CFO Greig Woodring – President and CEO
Analysts
Jimmy Bhullar – JP Morgan Andrew Kligerman – UBS Nigel Dally – Morgan Stanley Steven Schwartz – Raymond James & Associates John Nadel – Sterne Agee Sarah DeWitt – Barclays Ryan Krueger – Dowling & Partners Sean Dargan – Macquarie Jeffrey Schuman – KBW
Operator
Good day, and welcome to the Reinsurance Group of America First Quarter 2012 Results Conference Call. Today’s call is being recorded.
At this time, I’d 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.
Jack Lay
Okay. Thank you.
Good morning to everyone, and welcome to RGA’s first 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 our forward-looking information and non-GAAP financial measures. Following Greig’s prepared remarks, we’ll open the line for questions.
To help you better understand RGA’s business, we 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 the 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’ll make certain comments – or we’ll make comments on pre-tax and after-tax operating income, which is considered a non-GAAP financial measure under SEC guideline.
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 financial information may be found on our Investor Relations website at www.rgare.com. With that, I’ll turn it over to Greig for his comments.
Greig Woodring
Thank you, Jack and good morning everyone. Thanks for joining us.
We’re pleased to report a good first quarter with operating income per share of $1.52. Our Canadian business continued its trend of producing strong results and we are also happy with the results out of Asia-Pacific and our US Asset Intensive business.
These results were partially offset by elevated critical illness and mortality claims in the UK and slightly higher than expected individual mortality claims in the US. Our effective tax rate this quarter was 32% slightly below our anticipated rate for the full year of 33%.
We continue to feel some downward pressure on earnings as a result of the ongoing low interest rate environment. Investment income was down $30 million or 8% quarter-over-quarter, including a $49 million decrease in the fair value of option contracts supporting equity-indexed annuities.
Excluding those contracts, investment income was up 6%. The average portfolio yield dropped to 5.05% from 5.35% in the first quarter of 2011 and 5.19% in the fourth quarter of last year.
Book value per share increased to $80.44, including AOCI and to $58.57 without it. The company’s capitalization and investment portfolios remained strong.
Turning now to our segment results. Our US Traditional business reported pre-tax operating income of $63 million, down a little from $66 million last year.
The group disability business performed as expected but individual mortality claims came in a bit higher than expected. We view that higher claims as a typical fluctuation following in that 1% to 2% volatility range coupled with the seasonality effect we generally experienced during the first quarter of each year.
We typically see relatively higher claims and lower premiums in the first quarter due to the seasonality effects associated with higher debt rates during the winter months. Premiums were up 9% quarter-over-quarter, with help from an in-force transaction and solid growth in our group and health related businesses.
We’re pleased to report that we retained our number one position in the US for recurring new business during 2011 with a market share of 22.4% that is according to an SOA, Society of Actuaries that has sponsored reinsurance market study. In addition, we remained one of the top reinsurers in terms of in-force with the market share of 19%.
Our US Asset Intensive results were strong this quarter and pre-tax operating income rose 17% over $24 million. Favorable equity market conditions have benefited equity-indexed and variable annuity reinsurance in four of the last five quarters now.
Our Financial Reinsurance business continues to produce strong fee income and added $6.5 million of pre-tax operating income in this quarter compared with $6.2 million a year ago. Turning to Canada.
Pre-tax operating income rose sharply to $47 million and 83% increase over the first quarter of 2011 with both periods benefiting from continuing mortality improvements, premium’s met expectations and were up slightly over a very strong first quarter of 2011. Just like the US our Canadian operations retained its leading position for recurring new business in 2011, the SOA survey showed a number one market share of 32.6% in Canada.
Turning to our international operations, first in Asia-Pacific. Similar to Canada this segment is off to a strong start with pre-tax operating income rising over 20% to $27 million this quarter reflecting favorable mortality experience.
All markets contributed to the better than expected results this period. Disability claims in Australia which you may recall were elevated in the fourth quarter of 2011 were in line with expectations this period.
Net premiums in this segment were a bit behind expectation totaling $325 million, a 4% increase over the prior year quarter. That sort of fluctuation in premium flows can result from timing and reporting practices of seeding companies, we expect it to even out over the course of 2012.
Next in Europe and South Africa pre-tax operating income was $4.6 million, down from $22 million last year, primarily due to poor experience with our critical illness business in the UK. Additionally the UK’s mortality results were worse than expected.
Collectively the rest of the markets in this segment performed well this quarter. The critical illness claims in the UK were certainly higher than we anticipated though critical illness experience can be volatile just like mortality over short term horizons despite the performance this quarter this business has performed well overtime and we expect future results to be in line with long term projections.
Reported premiums were $293 million, a 9% increase over last year. Original currency premiums were up 13% over the first quarter of 2011.
So, overall, we’re pleased to report another good quarter with annualized operating return on equity of 10.6%. Our first quarter ROEs are typically more modest due to the seasonality affected claims.
For the trailing 12 months, operating ROE was 12%. Our balance sheet and capitalization remains strong and we estimate our excess capital position to be around $400 million, reflecting the new DAC accounting guidelines.
Underwriting earnings continue to be the principal driver of RGA’s success and we look forward to continue top and bottom line growth for the remainder of 2012. We’re excited about the opportunities we’re seeing in various markets around the world and are well positioned to take advantage of those opportunities.
We thank you; appreciate your support and interest in RGA. And with that we’ll now take any questions you may have.
Operator
Thank you. (Operator Instructions) We’ll go first to Jimmy Bhullar with JP Morgan.
Jimmy Bhullar – JP Morgan
Hi, good morning. I had a few questions.
The first one just on potential opportunities you see that are from Solvency II and other accounting/regulatory changes over the coming years? Then secondly if you could talk a little bit more about what drove the spike in claims in Europe, is it because of the economy, is it something else and what the chances are that it will sustain?
And the last question that I just had is US premium growth seemed a little bit stronger than I would have expected, and I think you had a transaction that you signed in the quarter. So, if you could just talk a little bit about the transaction and what do you expect for premium growth in the US over the course of 2012?
Thanks.
Greig Woodring
Yeah, Jimmy. The potential opportunities look strong at this point.
We’re seeing quite a bit of activity with respect to Solvency II type opportunities. We don’t really know who is going to transact or when.
There is still a little bit of time between now and the advent of Solvency II. But the overall activity level is very high in the organization right now.
So, we will take that as a positive sign and we’ll see how that goes. In terms of claims, the claims in Europe are mostly adverse claims, mostly in the UK was high, the rest of the Europe was fine in terms of claims.
The UK claims just like the US claims they tend to bounce around, if you remember the UK had a very good year last year and the last couple of years; in particular the critical illness claims have been very well behaved. So this quarter we’re treating as an anomaly at this point.
In terms of premiums, the premium was a little bit high in the US a little bit light in Asia compared to what we would expect for the full year. But it’s always important not to get too hung up on one quarter’s results, they do tend to fluctuate a bit on the premium reported side as well and we can only smooth that out to some extent by accruing things that we know about and we can’t accrue things we don’t know about.
In terms of the – we did do an in-force transaction in the US that will add a reasonably amount to our premium totals for the year, but that’s prorated. So it wasn’t a cause of any especially unusual numbers for the quarter.
And we do expect the premium account for the US to be somewhere up in the 5% range for the course of the year.
Jimmy Bhullar – JP Morgan
Okay thank you.
Operator
We’ll take our next question from Andrew Kligerman with UBS.
Andrew Kligerman – UBS
Hey good morning. On the corporate line area, it look like investment income came pretty light relative to what I would have anticipated maybe $7 million, $8 million, $10 million shy.
Can you talk about the outlook for investment income there and what we can expect? And I have a quick follow up.
Jack Lay
Yeah Andrew, this is Jack. Let me take a crack at that.
The investment income was a little bit light. We allocate investment income based upon the net capital need of the various subsidiaries and that can fluctuate a little bit.
But yeah, we made the same observation through our allocation methodology. We ended up a little bit lighter than we would have expected in corporate for the first quarter that should moderate as we refine that allocation methodology over the remainder of the year.
So, I guess, I would guide you towards – let’s take a step back just from investment income, but talk about the corporate results. The results that we reported in the first quarter are expected to be a little bit lighter than we would see in the follow-on quarters and in fact we’d expect to see a positive pre-tax income amount in corporate on average in the follow-on quarters.
Andrew Kligerman – UBS
And Jack, what time – what kind of drove what specifically on the allocation or the investment income, I mean does that mean you’re going to take it from another area, why do you think you’ll see a reversal negative number to positive in subsequent quarters?
Jack Lay
Yeah, Andrew it won’t be dramatic. But we had to refine the methodology just because we had to overlay a new DAC reporting methodology.
And there is an expectation that we’ll see an ongoing refinement. And refinement doesn’t imply a big adjustment.
It’s just a very modest refinement going forward. So, once again, if you take a step back and think not just of investment income but of the bottom line result, we would expect debt to improve.
We have some expense accruals that hit us a little bit harder in the first quarter typically and we would expect to see a little bit more in investable funds that remain at the corporate level as opposed to being allocated going forward as well as we continue to generate cash.
Andrew Kligerman – UBS
Got it. And then just on premium going back to that.
Asia up 1% what kind of dampened the Asia and what’s the strength of Europe, South Africa being up 13% just want to get a sense of what’s going on and what might change going forward.
Greig Woodring
Well, if you remember taking the latter question first. The European segment was up considerably last year.
And so we’re still following that momentum forward as we generate more revenue out of Europe, so it’s pretty strong there. In Asia, we’ve been experiencing especially in Korea and Japan, some need to fill up the pipeline and so that has been dampening the premium growth rates that we’re seeing across the rest of the region.
But again, I would caution you that one quarter doesn’t necessarily tell the story, these results do bounce around a bit.
Andrew Kligerman – UBS
But you think that the pipeline or numbers could come through in a bigger way in Asia, Korea down the road...
Greig Woodring
Yeah.
Andrew Kligerman – UBS
Not necessarily next quarter.
Greig Woodring
Yeah, I would expect the growth rate to pick up in Asia.
Andrew Kligerman – UBS
Thanks.
Jack Lay
Andrew, this is Jack. Maybe to pick up on that.
We may want to refer you back to the guidance we issued in January of this year. Because as Greig mentioned, quarter-to-quarter we can’t see the top-line, there is some volatility and it will move around a little bit.
But the guidance that we had issued couple of months ago or so really did – or three months ago I guess I should say did – really did contemplate what we expect in each of those segments relative to any – for instance, in-force deals that it had been signed and so on and so forth. So I would refer you back to that guidance we issued in January.
Operator
We’ll take our next question from Nigel Dally.
Nigel Dally – Morgan Stanley
Great. Thank you good morning.
First with excess capital, you mentioned it was down to $400 million from what I think it was $500 million last quarter. And in your comments you mentioned DAC, not sure why DAC has any impact on capital, so if you have some color there?
Then second in Japan we’ve heard some companies talk about reinsurance transactions for supplemental insurance, you’re coming on with that expected to emerge into a large market and what does that potentially mean for RGA?
Jack Lay
Nigel, this is Jack. Let me handle the question on excess capital, because it’s kind of little bit murkier because of the DAC adjustment.
You may recall we were sitting at roughly – our expectation was we were at about $500 million of excess capital at the end of year. Then we overlaid financial reporting adjustment for DAC that did take about $300 million out of capital, now that doesn’t mean that that impacts our excess capital by $300 million.
But it does affect the capital models that the rating agencies use. In fact, we’re going to meet with two of the three agencies that do forward us a rating within the next several weeks and we’ll get a little bit more clarification on their views on how the DAC – the change in DAC reporting affects their view of excess capital and in particular how it affects their capital model.
So, while we had indicated about $500 million of excess capital at the end of the year it feels like just because of that DAC reporting change that number is in the $300 million to $400 million range now.
Nigel Dally – Morgan Stanley
I guess I’m not sure on how that works out. Because your statutory surplus, I would have thought wouldn’t change as a result of any GAAP accounting changes, is it coming through the leverage ratio or how does the – just how does the DAC really impact the means in which you calculate the excess capital?
Jack Lay
Well, Nigel keep in mind that the rating agencies don’t necessarily default solely the statutory surplus in fact two of them use our GAAP reporting as a major basis for how they model the extent to which our capital requirements. So, I wouldn’t think of it – you’re right that it doesn’t affect the statutory reporting, but I wouldn’t think of it simply because of that as not having an effect on the capital models that the rating agencies use.
Nigel Dally – Morgan Stanley
Okay, got it.
Greig Woodring
And Nigel, with respect to the supplemental insurance, we do quote on supplemental insurance and reinsure a bit of it in Japan, that’s a very small piece of the overall picture in Japan for us.
Nigel Dally – Morgan Stanley
Okay, very good. Thanks.
Operator
We’ll take our next question from Steven Schwartz with Raymond James & Associates.
Steven Schwartz – Raymond James & Associates
Hey, good morning everybody. Before I start, I do want to follow-up on one comment.
Greig with regards to, I think it was a follow-up to Jimmy Bhullar’s question with regards to the block of business you said it didn’t add much and then you, I think you said that you saw US premium of 5% on the year. That – I just want to corroborate that because that is a bit lower than what we were told in March?
Greig Woodring
Well, defer back to – refer back to the March comment, I think we said 5% to 7% or something, 5% plus.
Steven Schwartz – Raymond James & Associates
Yeah, the point was like 6.7%.
Greig Woodring
Yeah, I think it would still be the same. And what I was trying to say clearly when we added that block in the beginning of the year, we did – it did boost the revenue a bit but it’s pro rata.
In other words, every quarter going forward will have the same boost.
Steven Schwartz – Raymond James & Associates
Right. Just so I’m clear here.
Did the March know about – did the March number that you gave, did that know about this deal?
Greig Woodring
Yeah.
Steven Schwartz – Raymond James & Associates
Okay. All right, fine.
And then if I may just on my own. Just some numbers, I think I do want to follow-up though on the corporate and other.
The allocation was the two investment income was low; I don’t think you told Andrew, Jack where that money went and where would it come back from?
Jack Lay
In terms of any refinements of the allocation what...
Steven Schwartz – Raymond James & Associates
Yeah.
Jack Lay
Segments would be affected.
Steven Schwartz – Raymond James & Associates
Yeah.
Jack Lay
The – because they sit on the largest portfolio, the US mortality is our traditional segment, would to the extent there is any refinements that would be affected the most and then the others to a lesser degree. And maybe I’m putting a point on this, I don’t want to make it sound like we’re going to have significant sort of refinements or adjustments, I was just commenting that, that’s been an ongoing process because of the change in DAC reporting and so we may see a little bit of impact on the corporate line going forward.
Steven Schwartz – Raymond James & Associates
Okay. And then, on the US Asset Intensive, you’ve got a couple of things running there obviously you’ve got the weird GAAP accounting for index annuities and then you have a benefit from, I assume the equity market being up 12%, any idea what a normal what a more normal run rate would have been for the quarter for Asset Intensive?
Jack Lay
Steven, are you talking about operating income?
Steven Schwartz – Raymond James & Associates
Yeah, I think it was not looking at the model, but I think...
Jack Lay
Yeah.
Steven Schwartz – Raymond James & Associates
...it was $24 million and you said you had benefit from strong equity markets which I would assume would be some type of DAC indoor.
Jack Lay
Got it.
Steven Schwartz – Raymond James & Associates
SOP 03-1 adjustment?
Jack Lay
Yeah. More – call it a more normalized sort of run rate would be in the $16 million to $17 million range.
Steven Schwartz – Raymond James & Associates
$16 million to $17 million, okay.
Jack Lay
Yeah.
Steven Schwartz – Raymond James & Associates
Okay. And then, if I may one more then I’ll get back in line.
Anything to take away from the – I think there were sharp drops in new business assumed both in Europe, South Africa and Asia, I know those numbers can get really weird, is there anything – is there a takeaway from that this quarter?
Greig Woodring
I don’t think so Steven.
Steven Schwartz – Raymond James & Associates
Okay, great. Thanks.
I’ll get back in line.
Operator
We will take our next question from John Nadel with Sterne Agee.
John Nadel – Sterne Agee
Hey, good morning, everyone. I’ve got a couple of quick ones, Greig or Jack, could you size for us, maybe in dollars the shortfall in UK mortality and in UK critical illness and remind us how big those two books of business are?
Jack Lay
John, this is Jack. Let me take a crack at that and maybe, I’ll express it in terms of cents per share and then you can...
John Nadel – Sterne Agee
Yeah. That will be helpful.
Jack Lay
...whatever you want, but I’d say the negative mortality in total for ESA was about or had an impact of about $0.12 per share. And you can think of that – a negative impact of $0.12 per share – and you can think of that as about two thirds of that impact related to critical illness claims and development and the remainder was just on mortality side.
John Nadel – Sterne Agee
Okay, that’s helpful. Then in – I’m just thinking about the Financial Reinsurance, I know it’s a very small portion of your overall earnings, but if I think back to your Investor Day, it appears to me that you are calling for about $50 million to $55 million of pre-tax income from this segment in 2012 with a very solid growth rate thereafter clearly annualizing 1Q results doesn’t get anywhere close to that, what’s built into your expectations specifically for that segment and how do you look upon that guide for 2012 for the full year, does it change, does 1Q results change your view?
Jack Lay
John, your question was on Financial Reinsurance?
John Nadel – Sterne Agee
Yeah.
Jack Lay
I think part of the confusion, may be what we’re reflecting in Financial Reinsurance is solely the US based sub segment so to speak. And I think if I recall...
Greig Woodring
Yeah, I think at Investor Day we showed you the international for the first time.
John Nadel – Sterne Agee
Okay. So the – sorry, go ahead.
Jack Lay
Yeah, John. I was just going to say that’s the difference that.
My recollection is in the Investor Day presentation, we aggregated all the Financial Reinsurance enterprise wide, which would include in particular the Asia-Pacific Financial Reinsurance business. So, I think that’s why in trying to come over the run rate when you’re looking solely at the US sub segment, there appears to be a disconnect.
John Nadel – Sterne Agee
Okay.
Greig Woodring
I think we’re pretty much John we are on track with that business.
John Nadel – Sterne Agee
That was my follow-up. So, then the only other question I have for you is just overall thinking back to the Investor Day longer term outlook very, very solid long-term outlook.
I think our expectations were good, continued top and bottom line growth, good ROEs, anything, I understand we can’t trend necessarily anything out of a single quarter’s results, but is there anything you saw this quarter or anything you see on the horizon that alters your outlook one way or the other in any of your businesses?
Greig Woodring
John, I would say no and in fact, we’d always like to have the better first quarter. We’d like each of the operating businesses to perform better than expected, but we know that the first quarter is always our difficult quarter and having gotten through this quarter with some ups and downs, but pretty much on track for the year in our opinion.
John Nadel – Sterne Agee
Okay.
Greig Woodring
We think everything is pretty much as we portrayed it on Investor Day.
John Nadel – Sterne Agee
And then by the way just as an aside, I don’t know if this has any impact, but on an accounting basis does the fact that it’s a leap year and you get an extra day in the first quarter, does that impact your claims at all?
Greig Woodring
Yeah. We have an extra day of claims and no extra day of premiums that’s true and actually somebody, I forgot the number and actually told me how many claims we had in the US on that day in particular and it’s a noticeable number, but that’s happens every four years.
John Nadel – Sterne Agee
Understood. Thank you.
Operator
We’ll take our next question from Sarah DeWitt with Barclays.
Sarah DeWitt – Barclays
Hi, good morning, could you help us just understand what the core number in the first quarter was ex-unusual items and you said there was $0.12 of negative mortality from ESA, I’m not sure if there was anything else or any other offsets and given that, do you still expect to hit your full year 2012 EPS guidance of 6.7 to 7.30 I know you mentioned a number of times that the first quarter is seasonally low? Thanks.
Jack Lay
Yeah, Sarah this is Jack. Maybe I could take that.
As we’ve tried to articulate here, we did have some unusual items as we always do going each way and we had better than expected mortality in some segments offset and others by worse than expected mortality. But when you combine it all, the end result was, I characterize is kind of a normal result, normalized result for the first quarter, recognizing that we do expect higher claims flow in the first quarter just because of seasonality.
So that’s – I guess, that’s our best answer relative to what was the run rate or normalized result. We typically don’t reiterate guidance once we’ve issued it.
We issue once a year. And if we were dramatically off that guidance and not expecting to make it up then we would feel a need to comment.
But we don’t reiterate the guidance, but as Greig said, the quarter came in roughly right on our plan or right at our expectation. So you can draw your own conclusions what that means relative to guidance.
Sarah DeWitt – Barclays
Okay. Thanks.
That’s helpful. And then, separately could you update us on what you’re seeing in terms of M&A opportunities as well as your appetite for any capital management or share buybacks this year?
Greig Woodring
Well, taking the M&A opportunities, I’ll let Jack talk about the share buy backs afterwards, but in terms of M&A opportunities when we think of that we think not only of potential acquisitions of reinsurance companies of which there are very few opportunities and don’t see on the scope right at the moment. But also opportunities to acquire or buy blocks of business by the embedded value of blocks of business and we’re seeing quite a bit activity on that front.
Much of it is the opportunities that Jimmy referred to earlier they have to do with Basel III or Solvency II. And others just are opportunities that are coming about as companies that refine their strategic direction and look to release blocks of business that are no longer core or strategic in their opinion.
So there seems to be a lot of activity at the moment. It’s too early to tell how it’s all going to end up.
Jack Lay
Yeah. This is Jack in terms of the capital situation we obviously didn’t announce any buybacks or anything like that.
We continue to consider both the dividend level as well as deployment of capital, whether that’s into the business or through return of capital in some fashion. So we’re about where we expect it to be.
We didn’t expect to make any – take any action this early in the year and we’ll continue to monitor the situation in terms of how much capital we have, how much we think we need so on and so forth. And, I will tell you everything is under consideration.
We don’t – we consider as we go through internally at the management team level and then in discussions with our board. We consider everything in terms of what to do with the excess capital, so no actions to announce here, but we’ll continue to review it.
Sarah DeWitt – Barclays
Great. Thanks for the answers.
Operator
(Operator Instructions) We’ll go next to Ryan Krueger with Dowling & Partners.
Ryan Krueger – Dowling & Partners
Hey, thanks. Good morning.
Just – first, quickly on the mortality transaction in the US, can you just quantify the amount of premium that’s added in the quarter?
Jack Lay
This is Jack. I think it was about $11 million to $12 million for the quarter.
Ryan Krueger – Dowling & Partners
Okay, great. And then on the surplus relief transactions that you’ve done for primary companies in Japan.
I was just curious, are those primarily fee-based financial retype deals or is risk transfer involved in those transactions as well?
Greig Woodring
Predominantly the former, predominantly surplus relief.
Ryan Krueger – Dowling & Partners
Okay. And then, lastly you guys mentioned several times the opportunities from Solvency II in Europe.
I was curious if you’ve also seen any increased opportunities to deploy capital in the US? There has been a couple public blocks I guess available of late and I don’t know I don’t think you’ve done too many of these in the past.
But, would you consider partnering up with another institution on an M&A type deal as well?
Greig Woodring
Well, we’re always talking about things like that, and yes, the answer in short is yes. And we have several of those discussions underway.
There is opportunities not only in Europe, but there is opportunities in the US as you mentioned as well as Asia.
Ryan Krueger – Dowling & Partners
Okay. Thanks, guys.
Operator
We’ll take our next question from Sean Dargan with Macquarie.
Sean Dargan – Macquarie
Thanks. Just given your update on excess capital, are you still safely above your target cushion?
Jack Lay
Yeah, we are. That target cushion is – it’s not set in stone, it’s just kind of a – I wouldn’t even call it a policy, it’s a target, I guess, the best way to put it, and that’s roughly $300 million and as I mentioned, we are 300 to 400 in excess right now.
So, yeah, we are certainly above it.
Sean Dargan – Macquarie
Okay. And your capital generation is on plan, as far as you know, I am just trying to think of how much you would have available to do block in M&A opportunities?
Jack Lay
Yeah. Well, let me respond to that.
The capital generation is roughly what we have articulated in the past and our best estimate is a couple of hundred million dollars per year. I don’t want you to put too fine a point on, for instance, the cushion on what we could or couldn’t do with that because that cushion is kind of a long-term view of how much excess capital we would all things being equal want to have.
But if we get an opportunity and it would involve deploying some of the capital that theoretically is part of our cushion, I mean we would certainly consider that because we can rebuild the cushion and there is nothing magic about the $300 million number that we’ve articulated. So, we like to think we’ve got a fairly significant amount of flexibility in terms of capital deployment if the right opportunities come along.
Sean Dargan – Macquarie
Thanks for the answer.
Operator
(Operator Instructions) We’ll go next to Jeff Schuman with KBW.
Jeffrey Schuman – KBW
Thanks. Good morning.
I want to go first to the disability business. To the extent that the results were more in line versus some of the quarters last year, is that reflecting just underlying experience being a bit better or by this point has the book changed a bit either with rate increases or some terminations?
Greig Woodring
It’s a little bit of both, but the experience was good in the quarter. We are always looking to take actions when we can and a lot of those contracts, especially the US renewal at the beginning of the year.
So, there is an opportunity to re-price the situation. But, again, there is, fluctuations in that business quite often and we try not to overreact to it.
Jeffrey Schuman – KBW
Okay. And then the other thing, just to kind of put a little bit of a fine point on it.
I think you characterized US individual mortality as being slightly unfavorable to expectations. But I wasn’t sure what you were using for a bogey, is it sort of the four quarter average or were you comparing it just sort of a seasonally adjusted first quarter expectation?
Greig Woodring
No, Jeff, it was adverse even compared to a seasonally adjusted. It was not a good quarter.
But, again, those things always moved out over time. We’re not particularly worried about it.
It’s just sort of a one quarter thing at this point.
Jeffrey Schuman – KBW
Understood. Okay, thank you.
Operator
And at this time with no additional questions in the queue, I’d like to turn the conference back over to our speakers for any additional or closing remarks.
Jack Lay
Okay. Thanks to everyone who joined us this morning.
We appreciate your interest. And with that, we’ll end our first quarter earnings call.
Thank you.
Operator
This concludes today’s conference. We appreciate your participation.