Q1 2023 Reinsurance Group of America Inc Earnings Call
Participants
Anna Manning; CEO & Non-Independent Director; Reinsurance Group of America, Incorporated
Jonathan William Porter; Executive VP & Global Chief Risk Officer; Reinsurance Group of America, Incorporated
Kin-Shun Cheng; President & Director; Reinsurance Group of America, Incorporated
Leslie Ann Barbi; Executive VP & CIO; Reinsurance Group of America, Incorporated
Todd Cory Larson; Senior EVP & CFO; Reinsurance Group of America, Incorporated
Alexander Scott; Equity Analyst; Goldman Sachs Group, Inc., Research Division
Andrew Scott Kligerman; MD & Senior Life Insurance Analyst; Crédit Suisse AG, Research Division
Daniel Basch Bergman; Equity Analyst; Jefferies LLC, Research Division
Erik James Bass; Senior Analyst of US Life Insurance; Autonomous Research US LP
Jamminder Singh Bhullar; Senior Analyst; JPMorgan Chase & Co, Research Division
John Bakewell Barnidge; MD & Senior Research Analyst; Piper Sandler & Co., Research Division
Mark Alan Dwelle; Director of Insurance Equity Research; RBC Capital Markets, Research Division
Michael Augustus Ward; Research Analyst; Citigroup Inc., Research Division
Ryan Joel Krueger; MD of Equity Research; Keefe, Bruyette, & Woods, Inc., Research Division
Thomas George Gallagher; Senior MD; Evercore ISI Institutional Equities, Research Division
Tracy Dolin-Benguigui; Director & Senior Equity Research Analyst; Barclays Bank PLC, Research Division
Presentation
Operator
Good day, and welcome to the Reinsurance Group of America, Inc. First Quarter 2023 Earnings Conference Call.
(Operator Instructions)
Please note, this event is being recorded.
I would now like to turn the conference over to Todd Larson, Senior Executive Vice President and Chief Financial Officer. Please go ahead.
Todd Cory Larson
Thank you. Welcome to RGA's First Quarter 2023 Conference Call.
I'm joined on the call this morning with Anna Manning, RGA's Chief Executive Officer; Tony Cheng, President; Leslie Barbi, Chief Investment Officer; and Jonathan Porter, Chief Risk Officer.
As a quick reminder before we get started regarding forward-looking information and non-GAAP financial measures. 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, the information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation and quarterly financial supplement, all of which are posted on our website, for a discussion of these terms and reconciliations to GAAP measures.
And now I'll turn the call over to Anna for her comments.
Anna Manning
Thank you, Todd. Good morning, and thank you for joining our call this morning. Last night, we reported first quarter adjusted operating earnings of $5.16 per share, a strong quarter that included very good performance in many regions and product lines, some nice in-force block wins and good momentum on organic new business across our markets. I am very pleased with this quarter and with the start to the year.
On the capital management front, we had another active and successful quarter, deploying $194 million into in-force and other transactions, and that success was across many of our geographies and products. To provide a little more perspective on the breadth of our wins, we completed deals in Canada, the U.K., Europe, Asia and our first U.S. PRT transactions.
We have been in the longevity reinsurance business for close to 15 years. And over those years, have built a sizable and valuable global longevity business. We are an active reinsurer in all the major longevity markets. And in 2023, we expanded our approach and solutions in the U.S. PRT market to include a side-by-side partnership model to capitalize on our strength and expertise on both sides of the balance sheet.
We are partnering with a couple of well-established, visible and high-quality insurance partners with broad access to PRT opportunities including at the very large end of the market. We are active on a number of opportunities in the pipeline, and we are excited and confident that the U.S. PRT market will be an attractive growth segment for RGA going forward.
Beyond U.S. PRT opportunities, our pipelines are very healthy and include opportunities in many markets and different products. In our organic reinsurance business, we see opportunities across the globe. In Asia, we are the leader in combining product development, underwriting and capital solutions and as a result, win many treaties on an exclusive basis. This is timely as we see early signs of a strong rebound in business activity in Hong Kong and throughout Asia as travel fully resumed.
In North America, we continue to win new business by leveraging our signature underwriting strength, including facultative services and other targeted underwriting programs and expertise. I believe this breadth of opportunities provides us an advantage as our risk expertise enables us to assess and engage in the more complex risks and structures.
I also believe our global footprint and strong client relationships provide additional advantages as we can allocate resources to the most attractive opportunities, regardless of geography or product. We have an established long history of not only winning transactions, but equally important, a long track record of performance from those transactions.
On the asset side, overall investment performance in the quarter was good. Variable investment income was solid, new money rates remained attractive and impairments were modest. We believe that our investment portfolio is well positioned to withstand a more uncertain period going forward. This was a strong quarter across the board and a very good start for our milestone year as we celebrate RGA's 50th anniversary in 2023.
We are well positioned, our business is resilient and the need for financial protection is clear. Our strategy of creating innovative new solutions is a win for consumers, a win for our clients and a win for RGA. Our clients recognize and respect all that RGA can do to help navigate increasing economic uncertainty, evolving regulatory and accounting changes and shifting consumer needs and competitive dynamics. Partnerships with RGA provide trusted expertise to succeed in these environments.
Throughout my time at RGA, I can't recall another period when we saw this level of opportunity and momentum. And when you add to that, the underlying earnings power in the business and the talented global team, it gives me a great deal of confidence in RGA's ability to continue to deliver growth and attractive returns to our shareholders. Thank you for your continued support and interest in RGA.
And I will now hand it over to Todd to go over the financial results.
Todd Cory Larson
Thanks, Anna. Before commenting on results, there are a couple of items I would like to mention. First, effective January 1, we adopted the new Long-Duration Targeted Improvement accounting standard, or LDTI. In April, we provided a re-casted 2022 quarterly financial supplement and a presentation that reflected the adoption of LDTI. We believe that overtime, the new accounting standard will provide better insight into RGA's long-term business performance and along with the new disclosures, provide additional transparency to investors.
Second, you may have noticed that we did not make specific reference to COVID in our quarterly materials. COVID impacts have diminished and the reliability of COVID reporting continues to decline. Going forward, we will address our quarterly results without breaking COVID out, separately.
Turning to the quarter's results. RGA reported pretax adjusted operating income of $456 million for the quarter, and adjusted operating earnings per share of $5.16, which includes a foreign currency headwind of $0.18 per share. The trailing 12-month adjusted operating return on equity was 11.2%. Excluding the 2022 assumption changes referred to as notable items, the trailing 12-month adjusted operating return on equity was 13.1%.
We are pleased with the strong quarterly results and in other key metrics, such as new business production, constant currency premium growth, the capital deployed into in-force and other transactions and investment results.
Reported premiums were up 7.3% for the quarter. After adjusting for adverse foreign currency impacts, premiums were up 10.8% on a constant currency basis. We continue to see good momentum across our business segments.
Turning to the quarterly segment results, starting on Slide 6, in our earnings presentation that can be found on RGA's Investor Relations website. The U.S. and Latin America Traditional segment reflected favorable overall results in our individual mortality business, primarily due to in-force management actions and higher investment income.
Our individual mortality claims frequency was favorable, consistent with the general population data that showed a declining impact of COVID-19 and negative non-COVID-19 excess mortality, likely due to an early peak of the flu season in the fourth quarter of last year. These positives were partially offset by unfavorable large claims volatility in certain cohorts with a net premium ratio over 100%.
Noting experience on these cohorts is reflected currently in income. Individual health and group business both had favorable experience, including favorable mortality in our group business. The U.S. asset-intensive business results were strong, reflecting favorable investment spreads, including higher yields on floating rate securities. And our U.S. Capital Solutions business continues to perform in line with our expectations.
The Canada Traditional results were in line with expectations and the Financial Solutions business reflected favorable longevity experience. In Europe, Middle East and Africa segment, the Traditional business results reflected moderately unfavorable experience, primarily due to the estimated mortality and morbidity claims of $8 million related to the earthquake in Turkey. EMEA's Financial Solutions business reflected favorable longevity experience.
Turning to our Asia Pacific Traditional business. Results reflected favorable overall experience across the region. The Asia Pacific Financial Solutions business performed well reflecting contributions from recent strong new business activity.
The Corporate and Other segment reported a pretax adjusted operating loss of $25 million less than the expected quarterly range, primarily due to higher investment income.
Moving on to Capital Management. As shown on Slides 12 and 13 of our earnings presentation, our capital and liquidity positions remained strong, and we ended the quarter with excess capital of approximately $1.4 billion. In the quarter, we deployed $194 million of capital into in-force and other transactions and continue to see a very healthy pipeline.
We also returned a total of $103 million of capital to shareholders through $50 million of share repurchases and $53 million in dividends. We expect to remain active in deploying capital into in-force and other transactions and returning excess capital to shareholders through dividends and share repurchases.
I will now turn the call over to Leslie Barbi, our Chief Investment Officer, and she will discuss current market conditions and our investment results.
Leslie Ann Barbi
Thanks, Todd. We had favorable investment results in the first quarter across investment income, new money rates and credit performance. On Slide 8 in the presentation, we show that the non-spread portfolio yield for the quarter was 4.71%, reflecting solid variable investment income and higher yield.
Looking at the base yield meaning before variable investment income, the non-spread portfolio increased to 4.45%, up from 3.8% in the first quarter of last year. Our new money rate in the first quarter was 5.56%, well above the portfolio base yield, so new money and reinvestments at current levels continue to support a higher portfolio yield.
VII was modestly above our expectations coming from real estate joint ventures. We continue to benefit from higher yields on floating rate securities and cash. Also, we have taken advantage of the environment over the last year with actions, such as extension trades and more recently swapping some of our floating rate assets to fixed rates in order to lock in attractive yields for a longer period of time. We believe the portfolio is well positioned to withstand a more uncertain period going forward.
Slide 9 of the earnings presentation covers the investment portfolio. Our investment strategy balances risk and return to build a portfolio to weather cycles and produce long-term value. Our overall portfolio credit quality was steady to slightly improving and has an average rating of A. Over 94% of the portfolio is investment grade rated and our high-yield holdings are primarily in the BB category. Credit performance was strong in the first quarter. Ratings upgrades outpaced ratings downgrades and impairments were modest at $41 million.
Moving to Slide 10 and 11. We've added additional information to our earnings presentation on commercial real estate and on office exposure in particular. Our portfolio is structured to provide us with solid returns and a lot of protection. We have an experienced team that has managed well through cycles and they originate the loans that we put in our portfolio, with 8 regional offices that give us boots on the ground intelligence and surveillance. We hold $6.9 billion of commercial mortgage loans for CML. The portfolio is high quality. The 56% average LTV means there's generally a lot of equity ahead of our loans that would absorb property price declines before our loan amounts would be at risk.
Valuations are reviewed at least annually. We further mitigate risk with a well-laddered maturity profile. Only 2% of the CMLs matured in the balance of this year and 6% mature in 2024. Another strong sign is that there's just one delinquent loan in the portfolio as of March 31. That's 1 loan out of about 700 and represents less than 0.3% of the commercial mortgage loan portfolio.
The office portion of the CML portfolio is $1.7 billion. Our strategy focuses on suburban office properties, not skyscrapers and major city central business district. The office portfolio has an average LTV of 57% and is diversified across more than 150 loans with an average loan size of about $11 million. Our investments are located across more than 50 metropolitan statistical areas, providing strong geographical diversification as well.
We are realistic about the environment. And as you would expect from RGA, we are actively monitoring our office portfolio and our process includes proactive engagement with borrowers as maturities or lease expirations approach or where we see changing portfolio metrics. While this environment of transition in office use presents the market challenges, I'm confident that we have the portfolio, people and process to navigate through this period of adjustment.
In summary, our overall investment results have continued to be strong. Our strategic approach to investments, the quality of the portfolio, our diligent underwriting and our proactive surveillance and actions give me confidence that we are well prepared to manage through changing market conditions.
And now I will pass it back to Todd.
Todd Cory Larson
Thanks, Leslie. To summarize, we are pleased with the strong start to the year, the strength of our business and underlying earnings power.
And now we'd be happy to open it up for your questions.
Question and Answer Session
Operator
(Operator Instructions)
The first question comes from Jimmy Bhullar with JPMorgan.
Jamminder Singh Bhullar
So first, I just had a question on your margins in the traditional U.S. business. They were higher than they've been under LDTI in any of the quarters. So wondering if you could talk about what are some of the sort of -- what were the contributors to the strong margins? And what do you view as sort of sustainable contributors versus maybe one-off type things that might have lifted results this quarter?
Todd Cory Larson
Jimmy, it's Todd. Maybe it'll be helpful, but maybe I'll talk about some of the pieces within the U.S. Traditional line. Had a very strong quarter. Overall performance experience is very good. And let me break it down a little bit to give you the moving pieces for a better understanding of the quarter. I think it would be helpful.
One is we did have some in-force management actions during the quarter. And as we talked about, and over the past few years, we're constantly monitoring the performance of the underlying business and where we see some imbalances, we will work with our clients to sort of get the balance back in order through various in-force actions, which could include the rate actions and other activities.
So we did have some execution of some in-force management actions in the quarter, which did flow through the bottom line because of the way the LDTI accounting works, where historically, these rate actions would have been spread out overtime of the underlying treaty, given that the rate actions, a lot of them, were on the cohort that had the net premium ratio above 100%.
The economic value of those rate actions came through currently in the quarter. And I want to highlight -- really a positive because it brings an increase to book value right away and the realization of that value that we created through those actions. Offsetting that a little bit was, we have normal large claim volatility from quarter-to-quarter, as you've seen and heard us talk about, again, historically.
We'll have some good experience on large claims and also some unfavorable experience on larger claims. But overtime, all that evens out. And we did have some negative of large claim experience in the quarter. And I would say, overall, the in-force actions in the large claim volatility really canceled each other out for the most part. And then our -- as I commented in my remarks, we did have some favorable group and individual health experience in the quarter.
And I would size that as about a $25 million positive variance. Then we had some miscellaneous other items, including some higher investment income and some other items that were overall positive in the quarter.
Jamminder Singh Bhullar
Okay. And then what -- if you could give us some insight into what went into your thinking and doing more in buybacks this quarter than you had done in the last several quarters? And should we assume that this is sort of more of a run rate going forward?
Todd Cory Larson
Well, for the quarter, as we're exiting the pandemic, we're feeling very good about our earnings power and capital generation. We're still also looking at a very healthy pipeline as we deal pipeline, as we mentioned as well. So we -- I think we just opportunistically took advantage of, one, the share price was off a little bit. But two, again, we're confident with our capital generation and I want to make sure we're actively managing the overall capital base. And as we've mentioned more recently, we're very comfortable managing the excess capital level down below its current level.
Operator
The next question comes from John Barnidge with Piper Sandler.
John Bakewell Barnidge
Looks like you racked up some frequent flyer miles all over the world with those in-force transactions in the first quarter. Can you maybe talk a little bit more about the pipeline, that side-by-side expertise and partnerships on the PRT side with insurance carriers?
Anna Manning
Thank you for the question. It's Anna. Yes, frequent flyer miles are racking up. Let me take a step back. I'll address your PRT question, first. Let me take a step back, if I may. We've been in the longevity reinsurance business for many years and across many markets. And we completed a nice size longevity deal in the first quarter in the U.K. market.
So over those years, this business has grown quite nicely. And it's consistently performed well. Recall, I mentioned in the fourth quarter call that we're now at a stage where we cover roughly 2 million pensioners and have in excess of $70 billion worth of expected lifetime benefits. There's strong demand, continuing strong demand for those longevity solutions. And we have, over the last 15 years, been providing both pure longevity solutions as well as full asset solutions.
Now we've added another leg to our strategy, and that's this side-by-side model in the U.S. where we no longer sit behind the client, but rather we sit side-by-side with them as their PRT partners, the market is very sizable. There's a lot of demand we see extending out for many years, and we expect to grow this business.
And what we like about this partnership model is that it really leverages some of our core strengths. We have access to data and insights, especially regarding the older age mortality. Remember, we are the older age mortality experts. We know that very well. That's a knowledge advantage. And then when you consider the diversification advantage that we have because of the large mortality business, that's something that all players in the PRT market can bring.
And so that -- the combination of those 2 plus our financial strength, our reputation for delivering on commitments. We just think this additional leg to our stool is very, very attractive, and we expect that it will, overtime, be successful and help us grow into and from the PRT market.
Now the rest of the pipeline, I think I said in my prepared remarks, I can't recall a time that I've seen this much in terms of opportunity and momentum. And it's not just in the transactions, it's also in our organic reinsurance business across the globe. We're really coming out of the pandemic, very strong and very well positioned.
And then here's my final comment. With the capital level, following up on the question that Todd addressed, with the capital levels and with potentially increasing market dislocations look, we have the flexibility, and we're set up to benefit from these growth opportunities. We're in really good shape to add to our long track record.
John Bakewell Barnidge
And my follow-up goes back to maybe Jimmy's question. How much of 1Q's performance do you view as run ratable versus some over-earning? I mean, obviously, mortality results have improved, some cash received in the bank on real estate transactions, but also more capital being deployed in the topline. I mean, just trying to help dimension that a little bit. It seems like it's closer to 5, quarterly, than it is 4, would love some help there.
Todd Cory Larson
Yes. I'd like to -- John, I'd like to -- this is Todd. I'd like to maybe kick that a little bit to as far as a more in-depth detailed discussion around forward-looking guidance, that kind of thing to our Investor Day that's coming up next month. It was a strong quarter, a lot of good things that happened in the quarter, and we're very optimistic with our underlying business and underlying earnings power going forward. But really would prefer not to get into the details on this call and get more in depth, next month.
Operator
The next question comes from Ryan Krueger with KBW.
Ryan Joel Krueger
I think you mentioned some favorable results in both Asia and EMEA in the quarter. I was hoping you could give some sort of perspective on the size of those.
Todd Cory Larson
Ryan, it's Todd. Yes, no -- yes, so Asia, I think we commented very good, very strong performance. And that -- it was underlying good experience with some higher investment income as well. And I would say it's pretty much across the region. As well, Australia had a positive result. It was a positive about $8 million pretax for the quarter. So it's good to see Australia have a good quarter. So Asia was strong. And hopefully, we'll continue to sustain that level. And again, we'll provide more meaningful guidance for everybody in a few weeks here.
Ryan Joel Krueger
Got it. And I guess on interest rates. In the past, you had talked about the benefit you were getting from reinvesting new money above portfolio yield. Now that we're in the new year, can you help us think about the ongoing tailwind maybe over the next year from potentially higher investment income?
Leslie Ann Barbi
Thanks, Ryan. This is Leslie. Yes, we had -- you're right, we had talked in the last couple of quarters about the amount rates have moved and that would point to this $25 million-ish per quarter, what's the ballpark, I had been giving. And that's really what the first quarter did look like that cumulative benefit of all the changes last year.
What I would think going forward is that if all rates move in parallel, our sensitivity is around $15 million for 50 basis points. But I will note, as we've said, we had been taking actions to extend maturities and lock in moving some of those floating rate to fixed. So the entire yields are good for us, and we want to make sure we take advantage of them.
Operator
Next question comes from Andrew Kligerman with Crédit Suisse.
Andrew Scott Kligerman
A few follow-ups. Very curious about your mention of pension risk transfer partners. Is that your primary clients that are interested, are they outside private capital? I'm not quite clear on that. So would love to hear you elaborate a bit.
Anna Manning
Andrew, it's Anna. Yes. The partners are life insurance companies. They are not private equity or other alternative organizations, they are long-standing clients.
Andrew Scott Kligerman
And Anna, so it's kind of a setup program where you know if you see something that came kind of partners will be involved in each transaction. Is that the right way to think about it? So sort of a structured approach to the pension risk transfers.
Anna Manning
I think that's a good description, a structured approach, and I would also ask that we defer this for our Investor Day where we will be providing additional information on the partnership.
Andrew Scott Kligerman
Got it. Deferred it is. And then the in-force actions, I kind of -- I'm not kind of clear on that either. Like what types of in-force transactions occurred in the quarter? Maybe just a little color -- a little picture of what that might have been and the actual earnings benefit?
Todd Cory Larson
Yes, Andrew, it's Todd. Again, as we've talked about, historically, the variety of things that we can do and we work with our clients to make sure that the relationship is in balance, that can include rate actions, maybe winning shares of treaties in other parts of the world, potential recaptures, there's a variety of things.
In the quarter, there was the impact of some rate action activity that we executed on, along with some other things. And that -- the overall impact of the in-force actions for the quarter was about $50 million, and that was relatively offset, as I mentioned earlier by the additional large claims in the quarter. So some positives and negatives. But again, overall business performance was good. And I think our ongoing in-force actions contributed quite a bit of value to the organization.
Andrew Scott Kligerman
I see. And just to kind of clarify that, that will be my final. So the -- you had some unfavorable mortality that offset it, but isn't that smoothed out in the underlying experience under the new accounting. So I just kind of wanted to make sure that I was clear on that. So there was some actual mortality that took away from the benefit of the rate actions, even though it's smoother under LDTI now?
Todd Cory Larson
Yes, Andrew, thanks for asking that. Yes, for the large claim volatility that we saw in the quarter, was primarily from the cohorts that have net premium ratio greater than 100%. So under LDTI, that variance goes through currently in income. If it would have been on cohorts less than 100% of the net premium ratio less than 100%, it would have been spread out.
Jonathan William Porter
Sorry, Andrew, this is Jonathan, too. Maybe just one more point to add is that some of the favorable frequency variance that we had actually was on cohorts that were with an -- net premium ratio less than 100%. So some of that positive benefit was spread out in the future periods, just as Todd mentioned.
Operator
The next question comes from Dan Bergman with Jefferies.
Daniel Basch Bergman
I guess to start, well, premium growth was quite strong in the quarter. It seems like some of this was driven by outsized growth in U.S. as an intensive. So just given that and all the deal activity you saw in the quarter. I wanted to see if you can give an estimate on where the core organic premium growth rate shook out in the first quarter?
And just given what you're seeing in all the business momentum that you discussed earlier, are there any further thoughts you can give on how you'd expect that to trend, as we move through the rest of the year?
Todd Cory Larson
Dan, it's Todd. Yes. No, again, overall premium growth, very happy with, very strong. I think your question is absent, maybe the PRT transaction, what's the normal growth or expected growth. But we still expect, overall, that we have -- our underlying business, we have the ability to continue to grow premiums at mid- to high single digits with contributions around the globe.
Kin-Shun Cheng
Dan, this is Tony. Let me just add to that. As Anna mentioned, look, we're optimistic about pretty much across the whole globe, both on the transactional and the flow business. We -- as mentioned, we're incredibly broad in what we do geographically, but also both on the asset and liability sides of the balance sheet. So whether it's -- in Asia, we see a lot of tailwinds behind the growth that we're experiencing. That could be the reopening of the travel, the discipline we've exhibited dealing with any blocks that were not performing favorably. We deal with them very quickly.
And the change in capital framework throughout all of Asia, that's a huge tailwind behind all our growth. And then you see in the U.S., our home market, where our brand is just so incredibly strong, and I'll call it signature strength of underwriting, we've been able to essentially amplify that core strength in numerous ways that, number one, we win business directly through that. And then number two is just improves -- it continues to improve our incredibly strong brand. And therefore, we win our more than fair share of just the traditional flow business there.
Daniel Basch Bergman
Got it. That's really helpful. And then maybe if I could just one more, maybe moving directions a little bit. But just before LDTI, pre-LDTI, there seem to be a clear seasonality to your claims with lower earnings in the first quarter and then higher profitability as we move through the year, particularly in North America, all else equal.
So I just wanted to see if there's any guidance you can give on how you'd expect the seasonal pattern to look, post-LDTI. Should we expect the same typical seasonal cadence to earnings? Or is there any change to the magnitude of that seasonality, given some of the smoothing that you discussed earlier? Any color there would be very helpful.
Jonathan William Porter
Dan, it's Jonathan. Let me take that one. So I think, big picture, we would expect to see some dampening of the seasonality effects, given the mechanisms under LDTI that you talked about. As Todd already mentioned for this quarter, it is dependent though on what cohorts have positive or negative variances in the period. So it's not fully predictable. So just keep that in mind as well. But I think, big picture, we would expect that seasonality would be a little bit less going forward.
Operator
The next question comes from Tracy Benguigui with Barclays.
Tracy Dolin-Benguigui
We'd like to touch upon your Chesterfield Re $500 million surplus note issuance where Apollo was the sole investor behind that. This is an embedded value deal. So that means there were reserve redundancies and this structure allows you to unlock part of that. What were the key drivers of your third-party actual opinion that determines an embedded value on this subject term life block?
Todd Cory Larson
Tracy, it's Todd. Yes, yes, we executed the surplus note in the first quarter, collateralized by the embedded value of a portion of our business. Actual appraisal, I'm not sure we can talk about the details, but it would -- it'll be done based on normal actuarial appraisal of a traditional block of mortality business. We like the transaction quite a bit because it's down at the operating company level provides regulatory capital on a very efficient basis.
Tracy Dolin-Benguigui
Okay. Could you see yourself doing more of these type of transactions?
Todd Cory Larson
Yes. It's part of our alternative capital strategy. If you recall, I think, I get my years wrong. But I think 2014, we did an embedded value security -- securitization that we ultimately have paid off fairly recently. So we have done one in the past. And so yes, we think it's a good way to help finance our growth as well as it demonstrates the value that's in our book of business that's on our books.
Tracy Dolin-Benguigui
And you talked about repricing in your in-force action. Can you just share what products in vintage years you're able to reprice? I'm assuming it was under a YRT.
Todd Cory Larson
Tracy, it's Todd. I don't think we're prepared to go down into the level of detail as far as which individual blocks and errors and that type of thing.
Operator
Our next question comes from Tom Gallagher with Evercore.
Thomas George Gallagher
Just want to be clear on some of these accounting differences. So the experience on the U.S. Trad business that gets smoothed, it sounds like that was favorable in the quarter. And if so, will we continue to see a little bit of the tail benefit of that flow through in future periods.
And the part of the book that's in, I guess, above 100% or in loss would -- had adverse experience of around $50 million on large claims. So that came during the current quarter. I just want to make sure I'm understanding those 2 pieces correctly.
And then also, if you can comment on what percentage of your book is in the immediate recognition part that's in more of a loss position versus what percent of your book is assumed to be at a profit that's getting smoothed?
Todd Cory Larson
Yes, I'll start out. This is Todd. Yes, on the contracts that are in a less than 100% net premium ratio, that is where we saw the favorable mortality experience, primarily from the lower frequency of claims, and that does get spread out. So that will come back in, in the future.
And then on the greater than 100%, again, to clarify what happened in the quarter is we did have some higher large claims in the quarter, and those were primarily in the cohorts with the net premium ratio above 100%. So those did flow through currently, but as well as, yes, we talked about during the call and in the remarks, we had some in-force rate actions that took place that were on -- actually also on cohorts greater than 100%. So that came through currently. And the impact of the in-force rate actions and the claims pretty much offset each other.
Thomas George Gallagher
Got you. And Todd, how much of your book is in the above 100% net premium level that would be coming through immediately, just like ballpark, what percentage of your book?
Todd Cory Larson
I would say -- this is Todd, again. Probably it's hard to exactly quantify it. It's certainly in the minority, less a minority part of the overall book or in-force. If I had to quantify it, say, in the 15 to 20 percentage points, but I don't have the exact figure with me right now.
Anna Manning
And if I can add to that for a minute. Yes, the adverse mortality in the quarter was large claim volatility. And so we expect large claim volatility to go up and to go down, but to smooth out overtime. And in those cohorts, if we have and when we have positive quarters, you will see it also go directly down into earnings.
So in those cohorts where the net premium ratio is over 100%, it's essentially similar to the old GAAP accounting where you saw that experience in the quarter just go directly down? If that's helpful.
Thomas George Gallagher
That is, Anna. And then my follow-up was, what about the experience in the quarter for the majority of your block that is below 100%, how favorable is that? I mean, I know we're not seeing it flow through now, based on the new accounting, but was that greater than $50 million? Like any way of quantifying that?
Anna Manning
No, it wasn't greater than $50 million. It was measurable, I would say, maybe in the $20 million range.
Operator
The next question comes from Alex Scott with Goldman Sachs.
Alexander Scott
My first one, I just had an accounting follow-up. When you all do in-force actions on product that's over 100% net premium ratio, I assume that would probably be enough pricing to potentially take it down below 100%. If that's the case, I get there's an immediate benefit. But is there also still an improvement to the run rate of earnings looking forward from those kind of actions? Because you'd have an NPR below 100% kind of going forward.
Jonathan William Porter
Yes. Alex, this is Jonathan. It really depends on how material the subset of the cohort is where the adjustments are occurring. So I would say, generally speaking, changes wouldn't be probably large enough to affect the whole cohort over the course of time as you do if there's multiple adjustments that could compound to be enough to bring it under 100%. But because this would be a portion of a cohort, it's unlikely that it would move in a period below.
Alexander Scott
Got it. Okay. And then when I think about these in-force management actions going forward, where are we with that? I mean, is there still a pipeline of things that you have to take care of there. What portion of this stuff over 100% NPR would you be looking to try to improve profitability on?
Kin-Shun Cheng
This is Tony. Look, this is not a new strategy for us. This is something we've been doing for quite some time. And obviously, the key part of RGA is risk management, and we're always monitoring these blocks, always refining our views towards these blocks and then making judgments and assessments.
As Todd mentioned, we will always work in a partnership manner, and we've got the luxury of working across the globe and probably more levers than others in terms of dealing with these situations.
So it's hard to quantify where we are in the innings, given the environment continues to change. But we will continually and consistently implement this strategy. And I think we've done a great job in balancing our partnership as well as our ability to enforce our rights in the treaty.
Operator
The next question comes from Erik Bass with Autonomous Research.
Erik James Bass
I wanted to ask you a bit about the variable investment income drivers. I think you stood out versus peers as being a little better than expected this quarter. I think you said it's coming from real estate partnerships. So just hoping to get more detail on kind of what's driving those and if it is from real estate and we start to go into a period where valuations are under pressure, is that a potential headwind for VII going forward?
Leslie Ann Barbi
Erik, this is Leslie. Thanks for that question. So the -- when I referred to real estate, that was the variance, but it's not just real estate driving VII. So we have a couple of different components. And I guess, our -- did stand out a bit. I would say, yes, there was real estate activity, but our private equity strategy. I think we focus more on middle market, which may be a little different from some, and we also have other types of funds in there. So a little more diversification.
So I think that in our base case, we're thinking we're at a solid level going forward. But obviously, there could be some dampening of valuations, given the cumulative impact of rising rates and tightening liquidity and so forth. So that's possible, but I don't think it would be -- it's not as if it's all dependent on real estate. It is diversified, and that was just activity above the expectations, not as if that was the whole driver.
Erik James Bass
Got it. And then, Anna, maybe going back to your comments about being very bullish on the outlook for growth, and you talked about the inorganic. But on the organic side, is that just more growth in the primary market you're seeing post-COVID, or changes in session rates and demand from your insurance counterparts?
Anna Manning
Thanks for that question, Erik. I think I'm going to turn that question over to Tony.
Kin-Shun Cheng
Great. Look, the short answer, we are very excited about the prospects on the organic business around the world. And to answer your question, it's both. I've mentioned in past Investor Days, at least in Asia, we saw post-SARS, just a strong underpinning of insurance awareness and the importance of insurance, which is obviously wonderful for our industry.
But then I would say the reinsurance penetration, obviously, these numbers come out regularly, but strategically over the longer term, the importance of reinsurance clearly has been seen throughout the pandemic.
So I would expect as reinsurers, like RGA, continue to find creative ways in which we can help grow the underlying market, help our clients use reinsurance in more modern fashion as well as the fact that RGA is obviously one of the leading life and health reinsurers in the world.
And if the pandemic shows anything, it's really you need a very strong partner in times of challenge. So I think we would expect to see over the medium and long run, a flight towards the high-quality reinsurers also. So everything is pointing in the right direction towards that strong organic growth.
Operator
The next question comes from Mark Dwelle with RBC.
Mark Alan Dwelle
Just a couple of really quick ones. Was all of the U.S. PRT transaction within the asset-intensive segment? Or was any of it recorded within Traditional?
Todd Cory Larson
Mark, it's Todd. It was in the U.S. Financial Solutions, asset-intensive area.
Mark Alan Dwelle
Got it. And then it was mentioned in the investment discussion that there was $41 million of impairment, what asset class was that related to?
Leslie Ann Barbi
Mark, this is Leslie. So the -- that was primarily driven by exposures to the 2 banks that sales in March in the U.S. So our exposure there was modest. Our portfolio strategy just because that highlights a question in the news. So our strategy really in U.S. banks is to focus on global systemically important banks, that's 2/3 of the portfolio.
And if you look at all the other types of exposure in there, the average of the rest of the portfolio is about $25 million per credit. So very manageable amount, and I'll note that there's been a handful of names in the news last week or so and across 3 of those, we have $10 million total book value exposure, so very manageable.
Operator
Next question comes from Mike Ward with Citi.
Michael Augustus Ward
I was just wondering on PRT, trying to think about it strategically because this has been a pretty decent market for the industry, post-crisis, I'd say. So just kind of wondering what might have changed economics or the structure of the market that brought you guys in because I would have thought that there's been pretty good demand for a while.
Anna Manning
It's Anna, again. I would say the -- it wasn't a result of a change. It was an expansion in our strategy. We have been very successful as reinsurers, longevity reinsurers, as I said, for close to 15 years. It just was a natural extension. And the structure, this third leg of our stool, we think, is a very attractive proposition and opportunity for both RGA and our partners.
Michael Augustus Ward
And then tangential question on the office CRE, maybe for Leslie. Just wondering if you could discuss the strategy on favoring suburban offices over sky scrappers in major cities. We've got some insurance companies that are highlighting the fact that, that's where they are. So things kind of are debated, just curious of your perspective.
Leslie Ann Barbi
Sure. Thanks for that question. I mean you have to have a strategy and an expertise. I think that we see a lot of value in suburban locations. And right now, I guess, another advantage of that is just that they tend to be more types of businesses that can't work remote. And -- because I guess, if you want to work at home, you wouldn't get an office nearby.
So we've always had this strategy that there's an opportunity there to focus on office and other types of things near these suburban population densities and just making sure it's a good location and very usable and there tend to be manageable sizes, so it's not hard to replace tenants if something does turn over. So I think different -- I guess, different firms can have different strategies, but right now, there's certainly a lot of -- the uncertainty is really around the work from home. So I think it's our strategy, putting us in a good position right now.
Operator
This concludes our question-and-answer session. I would like to turn the conference over to Anna Manning, Chief Executive Officer, for any closing remarks.
Anna Manning
And your continued interest in RGA. This was a strong quarter, demonstrating the substantial earnings power in our business. We are a global leader. We're well positioned in our market to capitalize on the growth opportunities that we've highlighted through the course of this call. And I remain confident that RGA will continue to deliver substantial long-term value for our shareholders. So thank you, and that concludes our first quarter call.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
