Apr 26, 2013
Executives
Jack B. Lay - Chief Financial Officer, Principal Accounting Officer and Senior Executive Vice President Albert Greig Woodring - Chief Executive Officer, President, Director and Member of Finance, Investment & Risk Management Committee
Analysts
Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division Humphrey Lee - UBS Investment Bank, Research Division Steven D.
Schwartz - Raymond James & Associates, Inc., Research Division Erik James Bass - Citigroup Inc, Research Division Ryan Krueger - Dowling & Partners Securities, LLC Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division Sarah DeWitt - Barclays Capital, Research Division Sean Dargan - Macquarie Research Paul Sarran - Evercore Partners Inc., Research Division
Operator
Good day, everyone, and welcome to the Reinsurance Group of America First Quarter 2013 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 B. Lay
Okay, thank you. Good morning to everyone, and welcome to RGA's First Quarter 2013 Conference Call.
Both Greig and I are here this morning. I'll turn the call over to Greig after a quick reminder about forward-looking information and non-GAAP financial measures.
Following Greig's prepared remarks, we'll open the line for your questions. To help you better understand RGA's business, we will make certain statements and discuss certain subjects during this call that will contain forward-looking information, including, among other things, investment performance, statements relating to projections of revenue or earnings and future financial performance and growth potential of RGA and its subsidiaries.
Keep in mind that actual results could differ materially from expected results. A list of important factors that could cause 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 on our press release and quarterly financial supplement for more information on this measure and a reconciliation 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 the call over to Greig.
Albert Greig Woodring
Thank you, Jack. And thanks, everyone, for joining us.
Overall, we're pleased to report a good start to 2013 with a relatively stable first quarter. Results benefited relatively -- from relatively little volatility in claims flow and from relatively strong performance in our Asset Intensive business.
Operating income totaled $123 million, up $1.65 from -- per diluted share. Consolidated premiums were up more than 7% in original currencies quarter-over-quarter.
We produced an annualized operating ROE of 10% this period despite the low interest rate environment and some foreign currency headwinds. Our average portfolio yield was 4.83%.
That's the same as the fourth quarter of 2012 but down about 22 basis points from last year's first quarter. A relatively stronger U.S.
dollar lowered after-tax operating income almost $2 million or $0.02 per share. We saw mixed, although relatively stable, claims experienced across our various markets.
As a reminder, we typically see relatively higher claims and lower premiums in the first quarter due to the seasonal effects of higher debt rates in the winter months for some of our largest mortality portfolios. We continue to benefit from the growing geographic diversity of our businesses.
We returned about $48 million of excess capital to shareholders during the quarter in the form of stock buybacks and another $52 million so far in April. Additionally, as announced yesterday, our board increased the previously approved $200 million stock repurchase program by another $100 million.
So we still have capacity of $200 million remaining. We will continue to consider share repurchases along with other opportunities.
There continues to be a number of block or M&A transactions throughout the industry, which could present attractive opportunities to deploy excess capital. Book value per share increased to $94.34, including AOCI and the $67.37 without it.
In addition to continued strong contributions from ongoing operations, the current period benefited from a pretax, $47-million gain associated with the repurchase of discounted collateral finance facility securities that we had issued in 2006. That gain is not included in operating earnings.
Turning now to our segment results. Pretax operating income in our U.S.
Traditional business increased 10% quarter-over-quarter, totaling $70 million this period. Individual mortality claims were generally in line with expectations, and slightly adverse Group Reinsurance results were offset with a good quarter in our individual health business.
U.S. Traditional premiums increased about 2% over the first quarter of 2012.
According to a Society of Actuaries sponsored reinsurance market study, we retained our #1 position in the U.S. We're recurring new business during 2012 with 19.6% market share.
We also remained one of the top reinsurers in terms of imports with the market share of 19.5%. We're pleased with another strong quarter from our U.S.
Asset Intensive business, which reported pretax operating income of $46 million and benefited from a strong equity market, as well as good performance from the large block of fix deferred annuities acquired last year. We expected doing roughly $30 million to $35 million per quarter in this sub-segment in 2013 though this quarter was very strong.
Our U.S. Financial Reinsurance operation reported another good quarter and added $8 million of pretax operating income.
Turning to Canada. Pretax operating income in Canada totaled $33 million this quarter, a decent result but far below the very strong comparable prior-year period when we earned $47 million and benefited from a treaty recapture.
Claims were slightly adverse in this period, and foreign currency fluctuation lowered pretax operating income by about $500,000. Premiums grew nicely to $243 million, a 12% increase over last year's first quarter and net of a $1.6 million foreign currency headwind.
Our Canadian operation also retained our #1 position for recurring new business in the Canadian marketplace in 2012. Their market share was 33.1%.
In Asia Pacific, we had a good quarter with pretax operating income of $19 million compared with the strong $27 million result last year. The current period benefited primarily from favorable results in Japan and several other Asian markets.
Results in Australia were moderately positive this period, and we continue to restructure the business profile there. Unfavorable foreign currency fluctuation reduced pretax operating income by $1.8 million largely due to a weaker Japanese yen.
Net premiums totaled $364 million, an increase of 12% in reported U.S. dollars and 14% in original currency.
Moving on to Europe and South Africa. Pretax operating income of $16 million was more than triple the result from the first quarter of 2012, still a little below expected run rate due to adverse critical illness claims experienced in the U.K.
and, to a lesser extent, some adverse claims in South Africa. That adverse claims experienced was partially offset by favorable results in several European markets.
Net premiums rose 11% to $324 million in Europe and South Africa. In original currencies, premiums were up 14% over the first quarter of 2012.
Corporate segment reported pretax operating loss of $8 million this period, pretty much in line with our expectations. The $47 million pretax gain from the repurchase of collateral finance facility securities I mentioned earlier is included in this segment's pretax income of $36 million but was excluded from pretax operating income.
So overall, we're pleased with the first quarter results, including good consolidated premium growth and strong results in our U.S. Asset Intensive business.
Operating ROE was 10%, annualized. Recall that first quarter ROEs are generally lower than the other quarters due to claims seasonality.
We're pleased to announce the recent stock buybacks and the increased authorization under our current repurchase program. We will continue to evaluate opportunities to deploy or return excess capital, which now stands between $500 million and $600 million.
We're still seeing a good deal of block acquisition opportunities in the marketplace, and we expect those opportunities to persist for some time. We thank you and appreciate your support and interest in RGA.
And with that, we'll now take your questions.
Operator
[Operator Instructions] And we'll take our first question from Jimmy Bhullar with JPMorgan.
Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division
I had a few questions. First, margins in the U.S.
doesn't seem a bit weak. So if you could just talk about what drove that.
And then on the deal environment, how is the competition for properties? And has it been affected by private equity, hedge funds being more active?
And then just on -- lastly on buybacks, if you could talk about the rationale for the timing of buybacks because last quarter, you weren't really clear on whether you'd do it in the first half of the year or the second half? And does this imply the fact that you bought back as much as you did in the first quarter?
Does that imply that you don't see any deals in the short term? Or does it not?
Albert Greig Woodring
Okay. Jimmy, first of all, margins in the U.S., I thought, were okay.
The mortality in the U.S. was slightly better than expected, very slightly.
So that was a good result, considering the first quarter, we had some administrative clean-up that was negative in that quarter. But generally speaking, U.S.
margins, we thought, held up quite well. And we're happy with that.
In terms of competition in the market, we do see a very substantial competition for assets by the private equity guys, such as Apollo and Guggenheim and so forth. And so they are very strong competitors in that space.
And we compete with them. But realistically, we are not winning too many of those battles.
Do you want to add to that?
Jack B. Lay
Yes. Jimmy, this is Jack.
On the buybacks, maybe I could address that. Yes, we certainly take a look at different opportunities for capital deployment.
And buybacks is, obviously, one of those. But it's always kind of a dance to some -- in some respect because we are looking at various opportunities to deploy into the business the block transactions.
But those can be very difficult to predict. So we're not particularly comfortable at just simply being on the sidelines vis-à-vis buybacks and waiting for the block transactions to occur.
So we're kind of going down the path where we're trying to take advantage of each. Certainly, we had taken advantages of the trading value of the stock relative to the buybacks.
And it remains to be seen the extent to which we can take advantage and execute on the block transactions. But certainly, there is a lot of activity underway in that respect.
Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division
And then I thought the group reinsurance business in the U.S. had slight weakness?
Albert Greig Woodring
Yes, it did. In a different line than the -- it had some weakness in the fourth quarter, and the third quarter last year, too, as we essentially repriced or got out of some situations where the experience was a little bit bad.
It returned to normal on the excess health business. But we had some light claims in the first quarter, and that happens.
Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division
And then just lastly on -- would you be open to pursuing a large transaction? And would you consider issuing equity if there was something that was attractive, like $1 billion plus type property?
Albert Greig Woodring
Yes. We're always open to a good transaction and a good deal.
And we would be open to that. Although we don't expect that to happen, we have excess capital.
And for the transactions we're looking at, we think we're in good shape.
Jack B. Lay
Yes, Jimmy, maybe I could comment on that as well. Certainly, we wouldn't want to lead with issuing any equity.
And we do have some leverage ability, and there's a reasonably active market for hybrid securities. So certainly, our goal would be to finance any deal or even a rather sizable deal internally.
And to the extent we issue securities, equity would be last on the list at this point.
Operator
And we'll take our next question from Humphrey Lee with UBS.
Humphrey Lee - UBS Investment Bank, Research Division
So on the U.K. resells, critical illness was again unfavorable.
I think since 2012, we've seen 3 back quarters '05. And on the last earnings call, you mentioned that there were a lot of anecdotal evidence about full critical illness experienced in the market place but too soon to send out any alarm bells.
So how should we think about the situation now? Should we begin to be concerned?
And any updates on what you're seeing in the market?
Albert Greig Woodring
Humphrey, yes, it's true. The last couple of quarters in particular, we've had a little bit of softness in there.
We're not talking about big variances. We're talking about relatively minor deviations from expected.
But still, the size of the block is big enough that it makes a few cents difference. So we are looking at it very carefully.
We have been, over time, adjusting our pricing upward over the last couple of years on critical illness. And then after having some very good experience, say 4 or 5 years ago on that line, we're seeing a little bit of deterioration in that line, overall.
But it's hard to separate the noise from the signal at this stage. We're still looking at it.
We think it's mostly fluctuation, and we have those seen adrift of increased pricing on our side in that business.
Humphrey Lee - UBS Investment Bank, Research Division
And then, I think, last quarter, you mentioned the drag on earnings was $7 million from the critical illness. What is the size of the drag for this quarter?
And also, you mentioned that the block has a relatively large size. Can you remind us how big is the critical illness book in the U.K.?
Albert Greig Woodring
I don't know that I know the answer to that off the top of my head, but it's in the -- my guess is it's in the $200 million to $400 million range, so...
Jack B. Lay
In terms of premium.
Albert Greig Woodring
In terms of premium. For the quarter, I think we were somewhere around, after tax, GBP 2 million off.
Humphrey Lee - UBS Investment Bank, Research Division
Perfect. And then looking to Asia Pacific, the 14% premium increase on a constant-currency basis was really strong.
How much of it is a result of pricing actions in Australia versus the pipeline coming through? And also, in terms of the geographic split, how should we think about that 14% increase?
Albert Greig Woodring
Yes, the Asian premium increase does include Australia. And Australia is a place where we're not really expecting much, if any, premium increase.
And in fact, it would not surprise us at all if we see some noticeable premium decrease over the next little while as we work our way through repricing business in Australia. So that is a blend of 0 to negative.
In Australia, they're actually -- probably, it was up a little bit in Australia in this particular quarter but not much; and very strong growth in the rest of Asia, where we have a very strong position. Remember our Asian business for the -- last year's has been characterized by rapid organic growth.
But in Japan and Korea, we've had to replace large transactions in the pipeline of premium. So if you sort of wipe out or look through that situation of replacing the pipeline, the rest of the growth has been quite strong in Asia because it's a growing market.
Humphrey Lee - UBS Investment Bank, Research Division
Okay. So it's basically just the pipeline from past couple of years are finally going through -- getting the benefit of that?
Albert Greig Woodring
Yes. I think we've probably pretty much come to the end of the filling of the pipeline stage in both Korea and Japan.
And we're ready to see some growth beyond the current levels.
Operator
And we'll take our next question from Steven Schwartz with Raymond James & Associates.
Steven D. Schwartz - Raymond James & Associates, Inc., Research Division
Actually, I wanted to ask about the Japanese pipeline. I do want to follow up, though, on Jimmy Bhullar's question with regards to the private equity and how you framed that, Greig.
You said that they were interested in assets. And I'm assuming that it means the fixed annuity business, where they're mostly concentrated on.
I'm wondering if you're seeing them potentially being more active in true insurance as opposed to asset accumulation?
Albert Greig Woodring
No. We see them focusing pretty much on Asset Intensive businesses.
Now they may take blocks of universal life business or other things like that in order to gather assets under management because I think they view that they have a real expertise in the asset management sector. And so very often, there is a partnership discussions we can have with them about how to approach blocks of business.
But for the most part, they're not really interested in biometric risk, at least as I understand it.
Steven D. Schwartz - Raymond James & Associates, Inc., Research Division
Okay. And then one more, if I may, and this may be more along the lines of the Investor Day, but given we just finished the first quarter, I'm kind of interested in wondering about territory expansion, if maybe there are new geographies, new countries that you might be looking at this year.
Albert Greig Woodring
Really not much. We are pretty solidly entrenched in the major markets.
I think we will be, over time and a little bit this year, looking at more growth in South America. And there are other markets, such as Turkey, that are interesting to us.
But those are not big efforts. We would love to get our license in China.
We think that's a -- that will be a big step when we can get that done. And we've been in the queue for some time and working hard to try to do everything to convince the Chinese that we're worthy of a license.
And so that's a process we have no control over, but we'd like to see that happen soon.
Operator
And we'll take our next question from Erik Bass with Citi.
Erik James Bass - Citigroup Inc, Research Division
I guess could you give a little bit more color on what you're seeing in Australia and -- I know you mentioned results were a little bit better than you'd expected this quarter, but maybe provide an update on how you expect profitability to trend, near term, in that block.
Albert Greig Woodring
Yes. Australia has seasonality just like the U.S.
does, but it's reversed, of course, because of the Southern Hemisphere. At least, that's what appears in our numbers.
If you remember, last year's first quarter in Australia was extremely good. So if you look at the Asia Pacific comparisons, this year versus last year, you're seeing some really strong Australian results in the first quarter that, of course, got completely wiped out in the course of the year.
So we don't read too much into a good first quarter in Australia. It's a turnaround story.
We're expecting results to improve substantially from last year but not necessarily to be good in Australia in 2013. So we're not expecting a substantial contribution from Australia as they would have had, say, 4 or 5 years ago but rather turning an inflection from the poor experience of the last couple of years.
Erik James Bass - Citigroup Inc, Research Division
Got you. So that thinking sort of a breakeven year, do you think the block is profitable in 2013?
Albert Greig Woodring
We hope to do a little bit better than breakeven this year.
Erik James Bass - Citigroup Inc, Research Division
Okay. And then just one on your outlook, I guess, for U.S.
Traditional margins, particularly on the mortality business, are you still expecting mortality claims to be somewhat elevated and I guess more came to the last couple of years given the drag that you've talked about from kind of the 2000 to 2005 vintage blocks?
Albert Greig Woodring
Yes, the block from, say, '99 to '04, which we described in different ways. Sometimes, I describe it based on the pricing environment, sometimes based on policy issue date, say, that block right around the turn of the century, turn of the decade.
It's still problematic. That's the block that has our lowest return.
And that is a block that we thought we would have outgrown a little faster, but this new business writing has come down so dramatically in the U.S. that we're not able to get past it quite as quickly as we would have thought.
That's part of our experience in a block. It performed pretty well on the last couple of quarters now.
Operator
And we'll take our next question from Ryan Krueger with Dowling & Partners.
Ryan Krueger - Dowling & Partners Securities, LLC
I have a follow-up on the question on, if you will, on the larger deals, how that can be financed. I guess, one, how much -- could you quantify how much debt capacity you think you have at this point?
Jack B. Lay
Yes. Ryan, this is Jack.
We probably have in the neighborhood of $300 million of senior debt capacity right now. And I commented earlier we've got some -- obviously, some capacity for some hybrid as long as that market hangs in there.
So I think you could stack another $300 million or so of hybrid on top of that.
Ryan Krueger - Dowling & Partners Securities, LLC
Okay, okay, quite a bit, actually. All right.
And then a couple of more on the Asset Intensive segment, good quarter there, it seems to be boosted a little bit from the equity market. What's your thinking going forward for a good run rate in that segment?
Albert Greig Woodring
Well, yes, it was boosted by the equity market. But the biggest piece of that business is actually the fixed annuities and the equity annuity, which both had good experience this quarter.
The fixed annuities is a bigger block than we had last year because of that large transaction last year. So you're seeing the full run rate.
It was a good performance for the quarter. But I think that more came about because of the spreads on the fixed side than on variable annuity side, which is a relatively smaller block.
But of course, it did perform extremely well in the quarter given the equity performance. You should think of that more as fixed annuities than equity annuities -- I'm sorry, than variable annuities as contributing.
Ryan Krueger - Dowling & Partners Securities, LLC
Okay. I think in the past -- in recent quarters, you had been expecting maybe around $35 million per quarter number there.
Would you expect it being higher at this point?
Jack B. Lay
Yes. This is jack.
I think we're optimistic that we would be towards the top end of that $30 million to $35 million range and potentially above it just given a look at the margins as we see them now, not dramatically above, but we're optimistic that we'll have a -- continue to have a pretty good run rate there.
Operator
And we'll take our next question from Jeff Schuman with KBW.
Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division
I was hoping to talk a little bit about the U.S. Traditional business.
Obviously, industry sessions and session rates have been coming down for quite a few years. You've experienced deceleration but on kind of a lag basis.
So you continue to grow premiums and in force for a number of years. But now you've gotten to a point where the in force has been flat for a number of quarters, premium growth this quarter, which -- it's 1 quarter.
It may not be representative. But it was down to 2%.
I guess to sort of extrapolate the trends, I mean, it looks like maybe we're headed for a point where traditional doesn't grow or perhaps could even contract. I'm wondering -- I mean, does that shade your thinking about acquisitions and consolidation?
I mean, do you feel a need maybe to do something to kind of preserve operating leverage in that space? And then the other thing I'm wondering about is based on past history, I think back to when Swiss reacquired a lot of market share, what are the constraints on really an effective market share in that business?
I think they found that when they bought a lot of market share, it was tough to hold because clients do want a certain amount of credit diversification and that was, I think, a little problematic for them.
Albert Greig Woodring
Correct. I think your analysis is pretty good, Jeff.
We don't expect the U.S. business to really shrink, but we don't expect it to grow very much at all.
This particular quarter, we had no blocks of business acquired on the mortality side. We had a fairly large block of business that was acquired and filtering in, in the first quarter of last year.
So it's a bit of a tough comparison. But if there is no blocks, we really are looking at something in the sort of 1% to 2% range for the mortality business itself.
Now that's supplemented by the group business and the individual health business, the long-term care business a bit. But it's not a growth area for us.
We're not particularly looking to buy blocks of business just to keep growing in that particular market space unless we can find them attractively priced. And we're eager to find anything that looks like a well-priced mortality block.
In terms of market share in the current environment, it's very difficult to sustain much more than the low 20% range. We had a market share of 26%, which we felt was unusually high due to some special circumstances that we could spot.
And we knew that, that was going to come down a bit. But our market share today at just a little bit under 20% is a good place to be.
It's hard to get much above that and hold onto it.
Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division
Okay. I guess I was just trying to reconcile the last couple of comments.
So it sounded like you are open to looking at blocks, but that, that would increase your market share, but then that would be hard to hold. So I'm not quite sure how to net those observations.
Albert Greig Woodring
Yes. When I think of market share, I'm thinking of market share, the organic -- what I call the flow business, the new business in the marketplace.
And that market share is hard to sustain above about -- maybe 22%, 23%. Once you get to that point, that's about it.
That's about as much as you really want to do. And so anybody who acquires another company and fix up some flow will see degradation above that point, clearly, which is also the best to happen.
Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division
Okay. So one could still counter by a situation like that, but they would need to rationalize it based on sort of earning on the sort of appropriate market share, I guess.
Albert Greig Woodring
Yes, correct.
Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division
Okay. And I think you kind of addressed this but, of course, U.S.
Traditional has a number of things in it. It does have more of the block one-off things, and it does have group, another products.
But if we were just looking strictly at individual flow, sort of recurring business, is that growing or shrinking for you at this point?
Albert Greig Woodring
I think it's almost static. It's grown -- maybe growing just slightly.
Operator
And we'll go next to Sarah DeWitt with Barclays.
Sarah DeWitt - Barclays Capital, Research Division
Your overall premium growth for this quarter versus historical levels and I think a lot of that was from the U.S. Traditional business, so how do you think about the potential to get back to high-single-digit to low-double-digit top line growth over time?
Is that a reasonable expectation over the long term?
Albert Greig Woodring
To get above double digit in today's world would require doing some block transactions. And that's certainly possible, Sarah.
But the expectation would be so [indiscernible], which I believe was the sort of a 9% year. And currency has some effects on that one, where the other currency is a headwind at the moment.
The growth -- or in the same currency in both Europe and Asia for us is fairly strong in the first quarter. We expect that to be strong all year long.
And Canada is running 12% in the first quarter. That's likely to be in that ballpark for 2013.
But overall, for us to get above 10%, it would require us to do some block transactions, which may happen.
Sarah DeWitt - Barclays Capital, Research Division
Great. And then just following up on your comments about the potential for block acquisitions.
What -- could you elaborate on what types of block acquisitions you're seeing out there in the marketplace, whether that's by line of business or by geography?
Albert Greig Woodring
Well, there's a fairly robust pipeline. It's not increasing, but it's not decreasing either.
It's been sort of constant over the last year or so, maybe 18 months, in terms of the number of opportunities, the split between more Europe and North America, not really very much in Asia. And they're all over the board in terms of what sort of properties.
There's a lot of companies in this low grade -- growth rate environment that are focusing their operations more. Their new ventures are restricted in terms of what they want to do to a fewer number of things that they're focusing on.
And a lot of them are looking to free up capital that's tied up into blocks of business that they would like to set free as part of the streamlining or focusing effort. And you see pressure from the new regulatory and accounting regimes and -- such as Solvency II or Basel III having an influence on all these.
So there's a lot of opportunities. They're all over the board, though, like I say in terms of what they are.
It's what the various different companies want to sell at this point.
Operator
And we'll take our next question from Sean Dargan with Macquarie.
Sean Dargan - Macquarie Research
I guess following up in the vein of companies looking to focus on, I guess, core businesses. There are a number of one-off variable annuity lines out there.
And I know that's a small part of your Asset Intensive business now. But as you get a better beat on policyholder behavior, does there come a point where you might get comfortable taking on variable annuity liabilities?
Albert Greig Woodring
Well, Sean, we've got a little bit of variable annuities in that businesses running off. We would contemplate a modest amount at periods of time just to sort of keep our book flat, not necessarily grow it.
But the products are changing so much that we'd be looking at situations where the variable annuities were completely redesigned and had a lot less volatility in them before we would really be entertaining buying a block of existing business. There's almost no chance we're going to be going after a big block of existing VA business with all the inherent volatility around that.
Some of the newer designs and some of the remediated business could be quite more stable and less volatile on a GAAP basis. And so that would have some interest to us.
Sean Dargan - Macquarie Research
Okay. And as your stock price moves closer to book value, I'm just wondering, is there a book value at AOCI?
Is there a hard and fast price that which you won't repurchase your shares?
Jack B. Lay
Sean, this is Jack. Yes, there certainly is.
And as you can imagine, the higher it gets done, the less attractive it is. But we don't like to throw out a price and kind of draw a line in the sand at which we wouldn't want to buy back the shares.
But certainly, an under book value, they're attractive now -- it's trading price under book value.
Operator
[Operator Instructions] We'll go next to Paul Sarran with Evercore Partners.
Paul Sarran - Evercore Partners Inc., Research Division
I wanted to ask a couple of questions about the collateral finance security repurchase you did. I guess I'd just ask them all at once.
I guess first, what kind of brought about the opportunity to do this deal. It seems like a pretty large discount.
You have, I think, around $490 million of additional securities on the balance sheet. Are they similar?
Could we see more of these? And then finally, do you consider this sort of a capital deployment action in the context of your kind of $200 million to $400 million a year of capital deployment goal?
Or are you planning to replace this with new funding? Is it more of a refinancing deal?
Jack B. Lay
Paul, this is Jack. Let me take that.
First of all, to your latter question, no, we don't look at this as a capital deployment. We will look at this as simply an opportunity to take advantage of a market that has fairly poor liquidity.
These securities don't trade much. It's not that many holders.
And at points in time, for a variety of reasons, they want to get out, which, if you think about it, really affords us an opportunity because we understand the underlying characteristics of the security, so to speak, for those securities. That is the underlying mortality.
And we're very comfortable. We're the ones, obviously, that packaged those securities.
And we think they create a great deal of value. So we've gone on a couple of times over the last several years and acquired some of those securities.
We had to be careful that we don't want to follow the securities law as we go about buybacks. So you've seen them spaced.
But it's very opportunistic. We see opportunities occasionally where there are sellers that want to get out at what we -- and we offer what we think is an attractive price.
We don't have to go back and refinance that because technically, we keep those securities outstanding. They're held by a subsidiary investment portfolio, one of our own subsidiaries.
And so they still serve the purpose of providing collateral financing, so to speak. But from a consolidated standpoint, we treat them as defeased because we've acquired the securities.
Does that answer your question?
Paul Sarran - Evercore Partners Inc., Research Division
Yes, I think it does. And so one other question, I'm just wondering if you could comment on avian flu.
I know you don't have any material exposure in China right now, but any thoughts on the current strain that's going around and any thoughts just on managing pandemic risk in general?
Albert Greig Woodring
Well, we are watching the situation. I suppose that's about all we can do at this point.
There is not really very many cases. It has not affected us at all, as far as I know.
And we would be watching the situation. There is always a risk of pandemic.
Flu is the most likely pandemic that we could envision. The situation is one where we've looked over time at buying mortality bonds or finding some protection.
We find them quite uneconomic to buy and not really as good coverage as we would like anyway. And so we've never really done anything in that realm.
We've modeled our pandemic exposure. We have, we think, capital to withstand most scenarios very effectively.
Operator
And we'll go next to Humphrey Lee with UBS.
Humphrey Lee - UBS Investment Bank, Research Division
I just have a follow-up on the acquisitions side. You mentioned that there are a lot of opportunities in the market for M&A.
I guess my question is what prevented you from getting it done. Is it because of the price being too high and the return for those are not attractive?
Or is it just the business that is out there is not something that you are particularly interested at that level? So -- and then also kind of what is the deferred rates for RGA when looking at M&A again?
Albert Greig Woodring
Yes, hopefully, these deals do get done. They -- we have done several of them over the last couple of years.
Some of them have been very small, and so you didn't notice them. We would consider the large annuity acquisition we made last year as one of these transactions.
There was a large in force mortality block that we did in the early part of the year last year that we would consider in this category. We've done several blocks of Italian creditor business over the last couple of years.
And there's been several of them, in other words, that have crossed the finish line for us. They tend to be smaller on average and not particularly noteworthy in terms of a big event in a particular quarter, but they add up.
So we're expecting that that's going to continue. And we're, at any given time, looking at a number of these opportunities.
I think we did serious work on 20-something last year and would have closed a couple of them. The year before, it was a similar number.
Maybe I looked at 20-something and closed 2 or 3 of them. So the hit rate is about 1 in 10.
Sometimes, we lose because others buy it. Sometimes, we lose because we're just at the end and not interested in the particular risk profile.
But whatever the cost, that's sort of our hit rate over the last couple of years.
Humphrey Lee - UBS Investment Bank, Research Division
So I guess, like how would you characterize the pricing in the market at this point? Are you considering them or they[ph] still have value somewhere?
Or is it kind of frothy at this point?
Albert Greig Woodring
Well, I think that the pricing is generally okay. The situations are competitive though.
And so you're always competing against other people in these sorts of scenarios. And it's not something you can count on at any given deal, the timing of the size.
And so it makes it a little bit difficult to predict. But the fact that the activity continues to show itself gives us a lot of confidence that it's going to be a part of our story over the next several years.
Operator
[Operator Instructions] And at this time, I'm showing no further questions at this -- I'd like to turn the call back to Mr. Lay and Mr.
Woodring for any additional closing remarks.
Jack B. Lay
Okay, thanks to everyone who joined us this morning. So if any other questions come up, feel free to give us a call.
And with that, we'll end the first quarter earnings release conference call. Thank you.
Operator
And again, that does conclude today's conference. We do thank you for your participation.