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Reinsurance Group of America, Inc. (NYSE:RGA)
Q4 2017 Earnings Conference Call
Jan. 30, 2018, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Reinsurance Group of America, Inc. Fourth Quarter 2017 Results Conference Call. Today's call is being recorded. At this time, I'd like to introduce Mr. Todd Larson, Senior Executive Vice President and Chief Financial Officer, and Miss Anna Manning, President and Chief Executive Officer. Please go ahead, Mr. Larson.

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Thank you. Good morning everyone and welcome to RGA's Fourth Quarter 2017 Conference Call. Joining me in St. Louis this morning is Anna Manning, RGA's President and Chief Executive Officer. Anna and I will discuss the fourth quarter results after a quick reminder about forward-looking information and non-GAAP financial measures. The following are prepared remarks. We'll be happy to take 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 related to projections of revenue, premiums 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 pre-tax and after-tax adjusted operating income, which is considered a non-GAAP financial measure under SEC regulations. We believe this measure better reflects the ongoing profitability and underlying trends of our business. Please refer to the tables in the press release and quarterly financial supplement for more information on this measure and reconciliations of net income to adjusted operating income of our various business segments. These documents and additional information may be found on our Investor Relations website at rgare.com. With that, I'll turn it over to Anna for her comments.

Anna Manning -- President and Chief Executive Officer

Thank you, Todd. And good morning. As indicated in the Earnings Release last night, we reported adjusted operating EPS of $2.60, compared to $2.63 a year ago. While net income, including the Tax Reform benefit, was $18.49. For the full year, our adjusted operating EPS was $10.84 versus $9.73 last year, an increase of over 11%. Now this was admittedly a noisy quarter for us with a lot of moving parts. But if you strip away the noise, it was a solid quarter capping off an excellent year.

Our geographic segment earnings collectively were in line with expectations as we continued to benefit from earnings diversity. Strong results from EMEA and Canada offset modest shortfalls in US Traditional and Asia. Our reported premium was up slightly in the quarter. This reflected several treaty recaptures in Australia and a modification to a health treaty in the US and Latin America Traditional segment. The recaptures were the result of our continuing repricing efforts of our business in Australia. These recaptures had reduced the concentration of individual disability business going forward, and we expect this will result in improved profitability in that operation in the future.

On a comparative basis, including adjustments for the recaptures and treaty modification, and on a constant currency basis, premium growth was in the 3% to 4% range for the quarter, and 7.5% on a full-year basis. Momentum in terms of organic premium growth remained strong in 2017. We expect this momentum to continue, with Asia and EMEA leading the way through ongoing product development efforts and solutions, which combine the broad range of our capabilities to meet the risk and capital needs of our clients.

We were fairly active in the quarter in terms of transactions, and for the full year, we deployed over $225 million into enforced transactions. The pipeline for our transactions business is active, and we believe the passage of Tax Reform and the possibility of higher interest rates may spur further activity. We are excited about the formation of Langhorne, which will be complementary to our efforts and will increase our capacity and reach. Particularly in terms of larger transactions. We view Tax Reform as a positive development to us in multiple ways. It was a significant boost to our balance sheet and capital position in the quarter. Our future tax rate will drop materially, increasing our earnings power. And in addition, we believe Tax Reform will help level the playing field with our global competitors. In conclusion, we had another very successful year. And we remain optimistic about our business prospects. RGA is well positioned in its markets, we have a proven strategy, and a long track record of successful execution. We anticipate ongoing change in the life insurance industry. And RGA continues to innovate and add to its capabilities in order to help our clients successfully address their industry challenges and opportunities. And with that, let me turn it back over to Todd.

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Thank you, Anna. I will provide a brief financial overview as well as further information on our capital management, investment results, and segment-level results. This was a successful year from a financial standpoint. Our adjusted operating earnings per share increased by 11.4% and our adjusted operating return on equity, before the impact of Tax Reform, remained strong, solidly within our 10% to 12% range. Our book value per share, excluding AOCI, increased by 13% on a total return basis, before the impact of Tax Reform. Including Tax Reform, our reported book value per share, excluding AOCI, was up 30% on a total return basis. By virtue of our strong earnings and with the boost from Tax Reform, our overall financial position and excess capital position continues to be strong. Our total leverage ratio decreased from 34% down to 27%, and we ended the year with excess [audio cuts out] our excess capital number includes a net positive effect from Tax Reform. We, like others, are still working through all the details of Tax Reform and its various impacts. Also, I'll remind you that we do have a share buyback authorization that remains in place with approximately $370 million of capacity.

Moving on to investments, the average investment yield, excluding spread business, was 4.38%, down 31 basis points compared to the fourth quarter of 2016, reflecting lower yields on new money and reinvested assets, as well as lower variable investment income. The average investment yield was 43 basis points lower than this year's third quarter yield, due primarily to a lower level of variable investment income. The effect of tax rate on pre-tax adjusted operating income of 30.4% was lower than the expected 33% to 34%, due to the recognition of income tax benefits associated with adjustments to prior period tax accruals as well as the tax treatment of uncertain tax positions related to foreign jurisdictions.

Turning to our segment results, the US and Latin America Traditional business reported pre-tax adjusted operating income of $93.8 million versus $129.3 million a year ago. This comparison reflects modestly unfavorable individual mortality experience and poor performance of certain lines within our group business this year, versus favorable claims in individual mortality and higher variable investment income in the year ago period.

For the year, we had some quarterly volatility, but for the full year, individual mortality experience is right in line with our expectations. Premiums decreased by 3% in the quarter, due to the effects of a modification of an existing health treaty, which resulted in the reduction in premiums of approximately $55 million. For the year, premiums adjusted for this treaty would have been up 3.1% toward the lower end of our expected range.

Our Asset-Intensive business reported pre-tax adjusted operating income of $55.3 million this quarter, up from $46.7 million in the year ago period, helped by income from the large transactions completed in the second quarter, higher variable income, and favorable equity markets.

Our Financial Reinsurance line reported pre-tax adjusted operating income of $21.1 million this period, an increase versus $14.4 million a year ago, due to the strong new business activity this year.

Our Canada Traditional segment reported pre-tax adjusted operating income of $38.6 million, up from $34.8 million in the prior-year period. This quarter, we had favorable mortality experience, premiums were slightly lower from a year ago, due to the ongoing effects of the loss of a creditor treaty that we've previously referenced. For the year, premiums were up 4.2% in constant currencies and adjusted for the creditor treaty loss.

Canada's Financial Solutions business, which includes longevity and fee-based transactions, reported pre-tax adjusted operating income that was flat with a year ago period, both periods reflecting favorable longevity experience.

Switching to EMEA, Middle East and Africa, our Traditional business reported pre-tax adjusted operating income of $29.7 million, up from $15.8 million last year. Mortality and critical illness experience was favorable this quarter, primarily in the UK. For the year, premium growth on a constant currency basis was 14.9%, reflecting good momentum across our business units. In addition, this segment had a very strong year in terms of adjusted operating earnings.

EMEA's Financial Solutions business, which includes asset-intensive, longevity and fee-based transactions, reported pre-tax adjusted operating income of $34.5 million, compared to last year's $36.7 million. Longevity experience continues to favorable, with last year's result also reflecting favorable asset-intensive experience.

Turning to our Asia Pacific Traditional business, pre-tax operating income totaled $27.2 million, compared to $18.5 million in the prior-year period. Our results this quarter in Asia, which excludes Australia, were slightly below expectations, with modestly unfavorable experience versus particularly favorable experience in the year-ago period. In Australia, we reported a modest profit compared to our loss in the year-ago period. Reported Asia Pacific Traditional premiums were up 11%, reflecting continued strong growth in Asia, where premiums were up 24%. Offset by a 13% reduction in Australia, which was due to the previously mentioned treaty recaptures.

Our Asia Pacific Financial Solutions business pre-tax adjusted operating income of $0.7 million, versus a pre-tax adjusted operating loss of $6.1 million in the year-ago quarter. This quarter reflects better-than-expected experience from a runoff treaty mentioned in previous quarters.

The Corporate segment reported a pre-tax adjusted operating loss of $59.6 million, compared with $26.3 million a year ago. The results for the current quarter reflect higher general expenses, mainly due the write-off of capitalized project costs and unusually high pension experience, which together totaled $30 million. We also had higher incentive-based compensation expenses, along with some other miscellaneous items.

With Tax Reform, we estimate our future effective tax rate will fall in the range of 21% to 24%. We caution that there remains some uncertainty, and further analysis required, related to the full effect of Tax Reform. So, there could be some changes to these estimates as we move forward.

As you know, we have historically provided intermediate term guidance at this time of the year. With that in mind, we expect over the intermediate term, growth in adjusted operating income per share to be in the range of 5% to 8%, and adjusted operating return on equity of 10% to 12%. For 2018 and thereafter, we expect our effective tax rate to fall within the range of 21% to 24%. Our guidance is based on normalized EPS, with 2017 reflecting the 21% to 24% effective tax rate on a pro forma basis.

Against the positive backdrop, we expect to see some continued headwinds from relatively low interest rates, but we have shown an ability to overcome such challenges over time. The recent rise in interest rates is encouraging and we are hopeful that this trend will be maintained. In conclusion, we are very pleased with our financial results for this year, as our global platform and diversified earnings sources continue to important components to our success. And the RGA team continues to execute on opportunities before us. Given our strong balance sheet and proven strategy, we are confident that we can continue to achieve our financial goals and objectives. We thank you and appreciate your support and interest in RGA.

...

And we'll open the call for questions.

Questions and Answers:

Operator

Thank you. If you'd like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press *1 to ask a question.

And we'll go first to Jimmy Bhullar from J.P. Morgan.

Jimmy Bhullar -- J.P. Morgan -- Analyst

Hi, good morning. First on the mortality trends in the US market, I'm wondering if you saw any pattern in terms of the type of business, group versus individual or vintage? Or like just claims trends in the 1999-2004 block and that drove a majority of the weakness? So, just if you could provide color on the weak margins in the quarter.

Anna Manning -- President and Chief Executive Officer

Good morning, Jimmy. Claims were modestly off on our individual business in the quarter. Now, all of that came from higher average size of the non-large claims. However, the number were right in line with our expectations. So, we view this as just regular quarterly volatility. There was also nothing of note when we look at the individual pieces, that is the eras, etc. Some pluses, some minuses. Small differences. It's really when you'd expect to see when you look at smaller and smaller pieces in a short period of time, like a quarter. So again, regular volatility. Stepping back, if you look at full-year claims, they fell nicely in line with expectations. And this is another year following 2016, where this business developed very much in line with what we expected. So, that's on the individual side.

On the group side, our poor experience was really reflecting large claims. And they were limited to a handful of treaties. Again, we consider that regular volatility. And over the course of a year of more, expect that that will even out.

Jimmy Bhullar -- J.P. Morgan -- Analyst

Okay. And then, on your ROE guidance, you kept it unchanged. It's a pretty wide range. But -- and I guess your earnings do go up a decent amount, the book value goes up also. So, as you think about your new business, are you expecting the ROE on that to be better than on the enforced? Or do you think that most of the benefit of lower taxes can be passed on to consumers, or to your clients in the form of lower prices?

Anna Manning -- President and Chief Executive Officer

Well, let me take that first in two chunks. One, to talk about the enforced transactions. And two, to talk about organic new business. I think on organic new business likely the benefits of Tax Reform will be passed to the consumer in the form of lower prices. Now, I think that can be viewed on a net-positive basis to the extent that it helps support further growth in the life insurance market. Add to that interest rates, which appear to be heading in the right direction, we think that that may, in fact, help to increase the growth in the underlying market. Still early days, but we'll keep our eye on it.

With respect to enforced blocks, they are so competitive, Jimmy, that I would expect that margins would not be, and returns would not, vary widely from where they have been in the past.

Jimmy Bhullar -- J.P. Morgan -- Analyst

Okay. Thank you.

Operator

Thank you, and we'll go next to Erik Bass with Autonomous Research.

Erik Bass -- Autonomous Research -- Analyst

Hi. Thank you. Can you talk more about the mechanics of the increase in your excess capital this quarter? And do you view all of the $1.4 billion as potentially deployable for transactions?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Hi, Erik. This is Todd. Yes, so you know we entered the third quarter around about $1 billion of excess capital. And so, we had the DTL release in the fourth quarter related to Tax Reform of about $1 billion. But all of that really does not flow through -- at least the way we view our excess, our capital model, the excess capital -- there is going to be this reclass just from retained earnings, out of retained earnings back into AOCI that, at least the way we look at it, will reduce some of what added to stockholders' equity ex-AOCI. And then as well, just the way some of the tax rates run through the capital models, there's some offsets to the headline number DTL release. So, if you look at all that together, just from Tax Reform, maybe we added about $600 million or so to our capital. But then, there's also some moving parts related to what happened in the fourth quarter activity, as well as some refinements to our capital models. So that if you just add it all up, we ended up adding about $400 million to the excess capital number. So, we ended the year at $1.4 [audio cuts out] billion.

Erik Bass -- Autonomous Research -- Analyst

Got it. And I guess you would view that similar to how you viewed excess capital in the past, that it is excess and potentially available for transactions?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

That's right. Yes.

Erik Bass -- Autonomous Research -- Analyst

Okay. And can you discuss the opportunity you see for Langhorne Re? Just what types of deals it will pursue? How those may differ from what RGA would look at? And how the economics will work for you over time?

Anna Manning -- President and Chief Executive Officer

Great. Erik, it's Anna. We view the opportunities for Langhorne to be very consistent with the risks that RGA has been successfully writing over the last decade or more. They will not be new risks to us. So, if I can just step back for a minute and set some context. Langhorne really is about an opportunity for us to participate fully in all of the enforced opportunities, including these larger opportunities. In the past, we did so by supporting other bidders on these larger deals, either by taking parts of the business that didn't fit their business model or by taking a share. Our experience with that approach -- three parties to a deal -- it made things a lot more difficult and sellers tend to prefer cleaner options. So, we partnered with RenRe to launch Langhorne, allowing us to really pursue these larger deals independently without having to partner with another buyer. So, it's really a combination of RGA's expertise in the life and annuity market, and then RenRe's expertise in managing these vehicles. We are targeting Langhorne to the larger life and asset-intensive deals in US and Europe. They're targeted, as I said earlier, on risks that we're very familiar with that we've been successfully writing. And it provides us opportunity to earn both risk-based profit as well as fee profits, or fee income, from originating and managing the business.

Erik Bass -- Autonomous Research -- Analyst

Thank you. That's helpful. And then, I guess on that last point, how are you earning the sort of underwriting piece? I'm guessing you get the fee revenue as advising on deals and from being a general partner, but do you share in some of the underlying risk as well?

Anna Manning -- President and Chief Executive Officer

Yes. We are -- we will be equity participants in the vehicle. We're co-general partners with RenRe, and we have a material, but not controlling, interest in that vehicle.

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Yeah, Erik, the risk profits come through our ownership of the -- partial ownership of the vehicle.

Erik Bass -- Autonomous Research -- Analyst

Got it. So, through the equity stake. Got it.

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Right.

Erik Bass -- Autonomous Research -- Analyst

Okay. Thank you.

Operator

Thank you, and we'll go next to Dan Bergman from Citi.

Dan Bergman -- Citi -- Analyst

Thanks. Good morning. The $225 million in capital deployed in 2017 seemed maybe a little bit below the typical range. But it does seem like there's been some increased news flow recently around potential life annuity blocks that could be up for bid. I was just hoping you could provide some commentary on the pipeline and outlook for future block deals? And any additional commentary on kind of the level of competition in that market and how Tax Reform should impact a higher position there?

Anna Manning -- President and Chief Executive Officer

Sure. So, the pipeline -- well first, the market was reasonably active in 2017. And as you've just indicated, we deployed $225 million. So, we executed on a number of those transactions. Competition was strong, and we expect competition to remain strong for those blocks. We're not seeing a whole lot of change in competition. However, Tax Reform we think directionally helps us, because it helps to level the playing field with some of our global competitors. We see potentially Tax Reform also, as we said in our prepared remarks, spurring further activity, especially when you combine that with some of the trends in interest rates. Look, our approach has been to look for deals in the past where we feel that we have a strength that provides us an edge. That approach has been successful. That's the approach we're going to continue to use going forward. We're going to look for those deals that fit -- risk appetites fit expertise, and we'll continue to go into this market in a very consistent way.

Dan Bergman -- Citi -- Analyst

Great. That's very helpful. And the maybe just switching gears a little bit, in terms of the EPS growth outlook, is there any guidance you can give in terms of what we should be thinking about in terms of the kind of normalized 2017 EPS base that we should be applying kind of your growth outlook to, either I guess before adjusting for Tax Reform or afterwards?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Yeah, hi, Dan. So looking at 2017, we looked back on that and there were some positives and negatives throughout the year. But when we add it all up, we'd say the reported result was sort of a normalized year if you will, albeit a very -- overall a very strong year from a performance perspective. But there's not a lot we would sort of pick and choose from as far as normalization for 2017.

Dan Bergman -- Citi -- Analyst

Okay. Great. Thanks. Let me just follow up there really quick. In terms of that 5% to 8% EPS growth guidance, I mean is there any color you can give in terms of the kind of factors or components? I mean, with premium growth kind of in the high-single-digits rate recently -- should we just -- is it just that? Kind of left some headwind from FX and interest rates? Is there anything else to think about there?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Well, FX and interest rates always come into play. But also, you see the premium growth rates. But a good portion of our business doesn't really have much in the way of premiums attached to it. For example, the Asset-Intensive business and some of the other financial solutions businesses. So, we still feel over the intermediate period of time given the business prospects we see not only on the traditional side, but also within the global financial solutions space, that 5% to 8%, as of now, is still toward the right range for us.

Dan Bergman -- Citi -- Analyst

Okay. Great. Thank you.

Operator

Thank you, and we'll go next to Alex Scott from Goldman Sachs.

Alex Scott -- Goldman Sachs -- Analyst

Good morning. I had one on the tax rate, I guess. You mentioned there's still some uncertainties around where the tax rate shakes out. I was interested in some of the specific items that are still uncertainties? And if any of that is related to the way excise taxes is applied? You know, it would be helpful to understand.

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Yeah so, right now our best estimate, as we stated, is between that 21% and 24%. If you look at RGA and our business model, even though a good portion of our earnings are sourced from outside of the US, the way our business flows work, a lot of the actual business ends up into a US taxpayer in some of our offshore companies. So that's a good thing from how we're looking at all this. So, I think part of it will just be how some of this continues -- how some of the sort of detailed items related to some of the provisions are interpreted by the industry and so on. Right now, we would not expect any significant deviation from the range that we provided. So, we think that's a pretty good estimate.

Alex Scott -- Goldman Sachs -- Analyst

And follow up on repatriation tax, I mean with some of that allowing for less issues with the geography of excess, does it change sort of the regions that you would prioritize for deploying capital?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

No. So, there was -- the one-time deemed repatriation, which -- you know, for us, again just given our business profile was a non-event, we really don't have any impact from the deemed repatriation. And then, no, beyond that we're -- we feel that we can continue to execute on where we have operations established. And we don't think that new Tax Reform regime will have any material negative benefit at all to us going forward. It's more we view it as positive developments, as Anna had mentioned earlier.

Alex Scott -- Goldman Sachs -- Analyst

Thanks.

Operator

Thank you, and we'll go next to Ryan Krueger from KBW.

Ryan Krueger -- KBW -- Analyst

Hi, thanks. Good morning. On excess capital, does a potential change to the NAIC factors, tax factors, in the denominator, would that have any effect on your view of excess capital if that occurs, going forward?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Hi, Ryan. So if you remember, RGA, we've got operations globally, so the NAIC RBC impacts the US regulated company, which houses some of our business but certainly not all of our business. So, certainly we need to look at the impact on the RBC formula due to the Tax Reform. That being said, we don't think it will impact RGA any more than everyone else. And we think it will be manageable as we go forward. So, no material impact -- at this point, I would say no material impact on the way we view excess capital.

Ryan Krueger -- KBW -- Analyst

Thanks. And then, shifting to Australia. Could you, given all the recaptures that occurred in the quarter, can you give an update on what's going on in that market? And I guess what RGA's role in that market will likely be going forward?

Anna Manning -- President and Chief Executive Officer

Ryan, it's Anna. With respect to the individual market in particular, I think we've noted that we have not won a new business treaty in that market for a number of years. And we still see that environment. However, I think there are some positive developments. I think with the recent ownership changes in the life insurance industry, consider that almost all of the banks have sold their insurance operations to global insurers. And I'd suggest, respectfully, that insurance companies tend to have longer-term horizons, and they want long-term sustainable markets. So, we view that as a potential positive catalyst. And so, net positive. But it will take I think some time for that market to move.

Ryan Krueger -- KBW -- Analyst

Got it. Thank you.

Operator

Thank you, and we'll go next to Sean Dargan from Wells Fargo.

Sean Dargan -- Wells Fargo -- Analyst

Hi, thanks. If I could just come back to Longhorne and thinking about why you're doing this. You're the company that has the mortality expertise and the experience in the asset-intensive deals. Why do you need RenRe in, what I think sounds like, a pension plan to help you? I mean, why don't you just come to the public markets and say, "This is the opportunity." And therefore, you wouldn't have to share the returns that you think you're going to be able to generate.

Anna Manning -- President and Chief Executive Officer

Well, it's really a matter of size. The larger opportunities are outside the stretch of how comfortable we are in terms of the amount of capital that we will deploy, and this vehicle allows us to work with other third-party capital providers. So, this is not just a partnership with RenRe. The committed capital has been contributed by, generally, large financial institutions that have a very similar view in terms of long-term business. It's really much a permanent capital vehicle. So, I would say that, again, we had approached the larger opportunities in the past through a partnership with a buyer. We think this is going to be a more successful approach than that.

Sean Dargan -- Wells Fargo -- Analyst

Okay. And then, an unrelated question. Just thinking about Tax Reform and the BEAT tax, I believe you made use of a Bermuda sub? I'm just wondering what your strategy around that going forward will be?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Hi, Sean. This is Todd. So the BEAT tax, if you look at it, it's really designed to capture sort of a US taxpayer sending business to an offshore affiliate that's a non-US taxpayer. Our business model predominantly -- if we send business from a US company to an offshore affiliate, usually that offshore affiliate is a US taxpayer. So, it doesn't -- we don't see it as significantly impacting our past approach.

Sean Dargan -- Wells Fargo -- Analyst

Okay. So, just to be clear, you were using Bermuda for unaffiliated reinsurance transactions from non-US seeding companies?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

And we have affiliated reinsurance that goes into our Bermuda company.

Sean Dargan -- Wells Fargo -- Analyst

Okay. And you're going to continue to do that?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Yeah. Our Bermuda company is still -- is a US taxpayer.

Sean Dargan -- Wells Fargo -- Analyst

Oh, OK. All right. Thank you.

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

So, it was more from an overall capital management perspective, than it was a tax play, historically.

Sean Dargan -- Wells Fargo -- Analyst

Got it.

Operator

As a reminder, it is *1 if you'd like to ask a question. And we'll go next to Kenneth Lee from RBC Capital Markets.

Kenneth Lee -- RBC Capital Markets -- Analyst

Thanks for taking my question. Just to follow up on Langhorne Re, what's RGA's minimum capital commitment to Langhorne? And in terms of -- think about excess capital outside of these commitments, is there still an expectation of holding some sort of capital buffer? I just want to get a sense of sort of deployable excess capital outside of Langhorne Re. Thanks.

Anna Manning -- President and Chief Executive Officer

Ken, it's Anna. As I stated earlier, we have a material, but non-controlling, interest with our co-general partner RenRe. We're not disclosing at this time the level of capital commitment. We will provide more on this as capital is actually deployed into the vehicle.

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

And to clarify too, the $1.4 billion excess capital that we mentioned as of the end of the year, that's before we've made any contribution into Langhorne. So, anything deployed into Langhorne would come from that number.

Kenneth Lee -- RBC Capital Markets -- Analyst

Got you. And then, just one follow up, in terms of Solvency II opportunities, just wanted to get any kind of updates there in terms of working with the regulators and what's the progress there? Thanks.

Anna Manning -- President and Chief Executive Officer

Yes. Ken, the low-risk Solvency II deals in Europe are still slow to transact, so I don't have much more of an update for you than I did during the last call. However, there are other opportunities in other parts of the world, and we are executing on those. For example, in Asia where deals are more full-risk and more on new business -- and I would suggest that that's contributing to some of our growth that you're seeing in that region. And we had a strong new business year in the US on our financial reline. And finally, I would also offer that a couple of the enforced blocks outside of Europe that we completed in 2017, they were in large part motivated by capital benefits around Solvency II. So, all in, although we are disappointed with the -- it continues to be slow, the low-risk Solvency II type of deals -- we do see a continuation through 2018 broadly across, as I said, the globe and the various forms.

Kenneth Lee -- RBC Capital Markets -- Analyst

Great. Thanks.

Operator

Thank you and we'll go next to Humphrey Lee from Dowling & Partners.

Humphrey Lee -- Dowling & Partners -- Analyst

Good morning and thank you for taking my question. Just a question related to Tax Reform and impacts on your excess capital generation. I think in the past you talked about the annual cash flow generation is roughly $300 million range. Now with the Tax Reform, how will we -- how should we think about your kind of annual capital generation on a go-forward basis?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

It may be just sitting here today at a very high level. If you think in terms that we will generate in excess of $1 billion of pre-tax income. If you take 10% lower tax rate on that, that's $100 million that -- and that doesn't necessarily translate specifically in the cash flow and capital generation. But again, sitting here today, it's not a bad proxy.

Humphrey Lee -- Dowling & Partners -- Analyst

Okay. So, some of the -- I guess some of the potential payforce by the industry doesn't necessarily affect you in a big way? So, that's why you're able -- the change in tax rate would largely fall through to your bottom line in terms of cash flow. Is that the right way to think about that?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Yeah, and like I said, it's a high-level proxy. That's right.

Humphrey Lee -- Dowling & Partners -- Analyst

Okay. And then on the US mortality, the current flu season's definitely a focus, at least on the media side. But at least I guess from your perspective, especially the information that you're seeing, how would you compare this flu season to the flu season in 2015, where you had unfavorable mortality in the first quarter?

Anna Manning -- President and Chief Executive Officer

That's a tough question because we are so early in the flu season. It's really too early to tell. Look, we're watching this very closely, as you'd expect. We don't have anything new to tell you right now about the flu and how that's shaping up that you haven't already -- or that hasn't already been reported in the press. We didn't see anything in the fourth quarter. But that's not surprising because we wouldn't have expected to see anything, because generally that impact is going to -- the impact of both winter and flu is going to be felt in Q1. So, it may not be satisfying to you, but I really don't have anything that I can provide at this point.

Humphrey Lee -- Dowling & Partners -- Analyst

Got it. Thank you.

Operator

And again as a reminder, it is *1 if you'd like to ask a question. And we'll go next to Marc Cohen from Guggenheim Partners.

Marc Cohen -- Guggenheim Partners -- Analyst

Good morning. Thank you for taking my question. Does the new debt to capital dynamic for the company change the perception of the company's capital structure going forward?

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

No. Not really, no. We have deleveraged a little bit, as we mentioned in the prepared remarks. But if you look back at our history, we have for the most part maintained the leverage within sort of this level. So, we don't see it as moving our overall capital mix at this point. We think the capita structure and capital mix has served us pretty well, and see no reason to change it at this time.

Marc Cohen -- Guggenheim Partners -- Analyst

Okay. Great. And just one more follow-up question on Langhorne, does RGA have any insight I guess with the structure, in terms of risk-adjusted returns in terms of bidding for business? Or is there an eventuality that Langhorne may be competing with RGA in the future on transactions that come about in the market?

Anna Manning -- President and Chief Executive Officer

No. We view Langhorne to be complementary to RGA, not in conflict to what RGA's pursuing. So, we would not be in a position of competing against Langhorne from RGA.

Marc Cohen -- Guggenheim Partners -- Analyst

Thank you.

Operator

And as a reminder, it is *1 if you'd like to ask a question. There are no further questions in the queue at this time.

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Okay. Well, this is Todd. I would like to thank everyone for joining our Fourth Quarter 2017 Conference Call. And appreciate your continued support. Thank you very much.

...

Operator

That does conclude today's conference. Thank you for your participation.

Duration: 45 minutes

Call participants:

Todd Larson -- Senior Executive Vice President and Chief Financial Officer

Anna Manning -- President and Chief Executive Officer

Jimmy Bhullar -- J.P. Morgan -- Analyst

Erik Bass -- Autonomous Research -- Analyst

Dan Bergman -- Citi -- Analyst

Alex Scott -- Goldman Sachs -- Analyst

Ryan Krueger -- KBW -- Analyst

Sean Dargan -- Wells Fargo -- Analyst

Kenneth Lee -- RBC Capital Markets -- Analyst

Humphrey Lee -- Dowling & Partners -- Analyst

Marc Cohen -- Guggenheim Partners -- Analyst

 

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