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Reinsurance Group of America Inc  (NYSE:RGA)
Q3 2018 Earnings Conference Call
Oct. 26, 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 Third Quarter 2018 Results Conference Call. Today's call is being recorded. At this time, I would like to introduce Mr. Todd Larson, Senior Executive Vice President and Chief Financial Officer; and Ms. Anna Manning, President and Chief Executive Officer. Please go ahead, Mr. Larson.

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

Thank you. Good morning, everyone and welcome to RGA's third quarter 2018 conference call. With me this morning in St. Louis is Anna Manning, RGA's President and Chief Executive Officer. Ann and I will discuss the third quarter results after a quick reminder about forward-looking information and non-GAAP financial measures. Following our prepared remarks, we'll be happy to take your questions. To help you better understand RGA's business, we'll 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 revenues, 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'll 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 for our various business segments.

These documents and additional information may be found on our Investor Relations website at rgare.com. And now, I'll turn the call over to Anna for her comments.

Anna Manning -- President and Chief Executive Officer

Thank you, Todd and good morning, everyone. As indicated in the press release last night, we reported adjusted operating earnings per share of $4.03 compared to $3.44 a year ago. This was a very strong quarter offsetting some softness in the first half of the year. Highlights this quarter include favorable claims in our US individual mortality business, favorable experience in our EMEA segment and strong performance in our Asia segment. Reported premium growth was 3% and 4% in constant currency.

And adjusting for lumpy items, organic growth was a strong 7%. We continue to see good overall momentum in our organic business. We had a very active quarter in terms of capital deployment both on in-force transactions and on share repurchases. We closed several transactions in the quarter and deployed a total of $190 million of capital into those transactions. The transactions in the quarter included one large US asset intensive longevity deal of approximately $2.8 billion in assets demonstrating that we continue to be successful in the closed block market despite considerable competition. We also repurchased 109 million of shares in the quarter.

This brings our year-to-date capital deployment on in-force transactions, share repurchases and shareholder dividend to $640 million well above our five year average and putting us on pace for the second most active annual period for capital deployment since 2012. To summarize, this was a very strong quarter in many respects. While we continue to see some volatility of our results in the short term, the volatility goes in both directions and tends to even out over longer periods of time.

Our business is in good shape. We are well positioned in our markets and we continue the disciplined focus on growing profitable business and effectively managing capital over time. Our transaction pipeline continues to be very active and we remain optimistic about our ability to win our share of transactions over time. And with that, let me hand it back to Todd to provide more detail on our results.

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

Thanks, Anna. I'll provide a brief financial overview. Our adjusted operating return on equity for the trailing 12 months was 10% which is at the lower end of our intermediate guidance of 10% to 12%. While depending on actual results for the fourth quarter, we feel confident that we will perform within our expected range for the full year. Our excess capital position of $1.1 billion combined with excess capital generation supports our ability to continue to fund strong organic growth, execute on attractive in-force transactions and return capital to shareholders through dividends and share repurchases.

The average investment yield excluding our spread business was 4.57% down 24 basis points compared to the third quarter of 2017. As variable investment income was above average in both periods but especially strong in the year-ago period. The average investment yield was up 25 basis points versus the second quarter of 2018 reflecting the higher level of variable investment income in the current quarter. Our new money rate was 4.52% up from 4.44% in the second quarter of this year a reflection of higher interest rates and some mix of investments.

The effective tax rate on pre-tax adjusted operating income of 24. 5% was slightly higher than our expected range of 21% to 24% primarily due to the annual geographic mix of our earnings. On a year-to-date basis, our effective tax rate was 23. 1% on pre-tax adjusted operating income. It's difficult to predict the timing of certain items but we expect the full year tax rate to be within our expected range perhaps toward the higher end. Now turning to our Business segment results.

The US and Latin America traditional business reported pre-tax adjusted operating income of $116.4 million versus $162 million a year ago. The year-ago period was particularly strong, individual mortality expense was favorable this quarter and variable investment income was above average. However, our US group business reported a loss again this quarter. In the year-ago quarter, US individual mortality experience was very favorable -- variable investment income was very strong and the group business was profitable.

There was sequential improvement in the underperforming group business lines that we discussed in the second quarter and we continue to expect that our corrective actions will lead to improvement in the future. Premium growth was 3% after adjusting for the effects of the modification of an existing health treaty that we mentioned late last year, organic premium growth was 5%. Our Asset-Intensive business reported pre-tax adjusted operating income of $63.8 million this quarter down from a strong result a year ago of $72.6 million.

The current period results were attributable to favorable overall experience in terms of spread and equity market impact while the prior year results reflected favorable experience on payout annuities and above-average variable investment income. Our financial reinsurance line reported pre-tax adjusted operating income of $21.6 million this quarter relatively flat compared to $22 million a year ago. Our Canada Traditional segment reported pre-tax adjusted operating income of $20 million down from $27.4 million in the prior year period.

This quarter, we had unfavorable individual mortality experience due to a greater number than expected of large claims which we view as normal volatility. Premiums were up 8% reflecting new business and the execution of an in-force transaction that we mentioned in the first quarter. Canada's financial solutions business which includes longevity and fee-based transactions reported pre-tax adjusted operating income of $1.6 million compared to $4.5 million a year ago with the current period results relatively in line and the prior period reflecting favorable longevity experience. Switching to Europe, Middle East and Africa. Our traditional business reported pre-tax adjusted operating income of $18.4 million compared to $15.4 million last year reflecting modestly favorable underwriting experience across most markets.

Reported premiums were down 1% with the prior year period reflecting strong new business across the segment including some single premium business. Adjusting for the prior year single premium business and the effects of foreign currency, premium growth in the EMEA region would have been up 8%. EMEA's financial solutions business which includes asset-intensive longevity and fee-based transactions reported pre-tax adjusted operating income of $56.4 million compared to last year's $29.7 million. We view this quarter as a strong result reflecting favorable longevity experience.

Our Asia-Pacific traditional business pre-tax operating -- adjusted operating income totaled $62 million compared to $26.6 million in the prior year period. Our results this quarter in Asia which excludes Australia experienced favorable underwriting margins in most countries across the region. Australia experienced a loss in the quarter reflecting unfavorable experience in the group and individual disability lines. Reported Asia-Pacific traditional premiums were up 3%.

Premium growth in Asia which excludes Australia adjusting for the effects of some catch-up premiums was 13% and 18% in constant currencies. Australia premiums were down 18% reflecting the effects of treaties recaptured late last year. Our Asia-Pacific financial solutions business reported a pre-tax adjusted operating income of $1.3 million versus pre-tax adjusted operating loss of $0.2 million in the year-ago quarter. Both periods reflect the negative effects of a treaty in runoff but to a lesser extent in the current period.

The Corporate segment reported pre-tax adjusted operating loss of $18.1 million compared with $21.7 million a year ago. The results for the quarter benefited from higher variable investment income. In conclusion, this was a very strong quarter for us and we are confident that we will continue to achieve our financial goals and objectives over time maintaining RGA as an attractive investment opportunity. We thank you and appreciate your support and interest in RGA and we'll open the call for questions.

Questions and Answers:

Operator

(Operator Instructions) And we'll take our first question from Kenneth Lee from RBC Capital Markets. Please go ahead.

Kenneth Lee -- RBC Capital Markets -- Analyst

Hi, thanks for taking my question. Just one on the US Latam traditional business. In terms of the favorable individual mortality, would you be able to give little more detail what's driven mainly by severity and frequency? And also in terms of the favorable variable investment income, anyway to quantify the impact in the quarter? Thanks

Anna Manning -- President and Chief Executive Officer

Ken, it's Anna. We had favorable experience from large claims both lower number of large claims and lower average size. And the favorable experience was also across most areas and ages. So with no significant outliers, I would call this just a broad-based period normal volatility in the positive direction.

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

And then Ken I'll take the variable investment income. If you look at our run rate for the variable investment income for the total Company, we were probably above the run rate by about $11 million or $12 million which is about $0.14 a share. And I would attribute probably about half of that to the traditional US line

Kenneth Lee -- RBC Capital Markets -- Analyst

Okay. Great. And just one more follow-up. In terms of the repricing initiatives on the underperforming group block maybe just give us an update on the progress there? And just wondering whether you could just I think last time you gave a time frame about like 1.5 year-or-so. Just wondering whether that's changed? Thanks

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

On the U. S. group business?

Kenneth Lee -- RBC Capital Markets -- Analyst

Yes. That's the US LATAM group business. Yes.

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

Yeah for the group business -- yeah we had talked about last quarter that the excess DI line and the excess healthcare and medical line performed unfavorably. And yes we are actively in the process of repricing that business. We're probably about a quarter of the way through repricing that business and then a large amount of the renewals come up January 1st. So we're actively -- as we are looking at those blocks of business right now and working with our clients and those will be repriced as we turn into next year.

Kenneth Lee -- RBC Capital Markets -- Analyst

Okay. Great. Thank you very much.

Operator

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

Erik Bass -- Autonomous Research -- Analyst

Hi, thank you. Couple of things on just the block acquisition front. I guess, first, could you provide any additional color on the transactions in terms of product or geography outside of the large asset-intensive deal in the US? And then you talked about still seeing an attractive pipeline for deals. Are you getting a sense that activity levels are starting to pick up more broadly across the industry?

Anna Manning -- President and Chief Executive Officer

Erik, it's Anna again. So we did two material asset-intensive deals both in the US. One was an individual annuities and payouts and the other was a fixed deferred annuity block. We also -- competition is strong and was strong on those deals. We also did a few smaller financial reinsurance deals in both Europe and the US in this quarter. In terms of the pipeline, I would characterize it as strong and the market is very active. We're seeing a continuation of good deal flow again in both North America and in Europe. And I would say that with interest rates moving up, we feel that that flow will not only continue but may in fact pick up over the course of the rest of this year and into 2019

Erik Bass -- Autonomous Research -- Analyst

Thank you. And then -- it was a very strong quarter for both EMEA and Asia. Can you just provide a sense of how much better results were than your typical expectation? And how you would think about the run rate earnings power for those businesses?

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

Sure. Yeah I'll start with EMEA. As I mentioned in my comments, traditional had a favorable result on the traditional side and very favorable result on the financial solutions side mainly attributable to the longevity business. I think, if you combine those two both the traditional and the financial solutions businesses, our best estimate for our run rate right now on averages is about $50 million to $55 million pre-tax. And then turning to Asia excluding Australia, again, as we've mentioned there is little bit of noise in there from client reporting timing et cetera. But we would still view the run rate there for pre-tax income again on average of about $35 million to $40 million in the near term

Operator

And we'll take our next question from Ryan Krueger with KBW. Please go ahead.

Ryan Krueger -- KBW -- Analyst

Could you provide some more detail on the expected earnings contribution from the in-force deals you did during the quarter and the time period it may ramp up?

Anna Manning -- President and Chief Executive Officer

We don't provide specific financial details on a specific deal. In general, you've heard us indicate that our pricing targets are 13%. We would expect that to over time earn those returns some deals may be up a little, some down a little. But overall, we're very confident in making our returns. In terms of ramping up, we're repositioning some assets and expect that that will continue through the rest of this year and into parts of next year.

Ryan Krueger -- KBW -- Analyst

Okay, thanks. And then actually just related, I mean given that there is significant competition for perhaps intensive yields in the US. Could you give a little perspective on how you were able to finding the drivers of -- even in those deals?

Anna Manning -- President and Chief Executive Officer

Yes. The reasons that we feel we win, I would point to a few factors. One is the strength of our client relationships and also the strength of relationships with regulators. We are a strong and well-known counterparty. We have demonstrated risk and structuring expertise. We have a proven track record of execution certainty and that's important for some sellers. And in some cases, that's providing us with a last look on deals. So it's a -- those are the factors that are aiding us and winning some deals.

Operator

And we'll take our next question from Humphrey Lee with Dowling & Partners. Please go ahead.

Humphrey Lee -- Dowling & Partners. -- Analyst

Good morning and thank you for taking my question. Just to follow up on Ryan's question about the US asset-intensive. I fully understand that you don't share deal specific terms but maybe just to think about in terms of the capital allocation for these two transactions like how much did these two transaction in US asset-intensive consume of the $190 million of capital deployment?

Anna Manning -- President and Chief Executive Officer

It was a vast majority of the $190 million deployed in the quarter.

Humphrey Lee -- Dowling & Partners. -- Analyst

Okay. Got it. And then more of a kind of housekeeping question. Like looking at your interest expense in corporate this quarter it looks very low. I was just wondering if there is something some interesting dynamic that took place in the quarter?

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

Yes. Humphrey one thing that comes to mind is the way the accounting works for some of the FIN48 which are some tax reserves for some uncertain tax positions, when we close out some tax years we release some of the interest accrual that we have on some of our tax positions. And I think there was a release of the interest in the third quarter on a tax position for some tax returns that were closed out

Humphrey Lee -- Dowling & Partners. -- Analyst

Okay so it should go back to kind of roughly $37 million a quarter?

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

Yes.

Humphrey Lee -- Dowling & Partners. -- Analyst

Okay, all right. Thank you.

Operator

And we'll move on to our next question from John Nadel with UBS. Please go ahead.

John Nadel -- UBS. -- Analyst

Good morning. The first question is just how to think about free cash flow when you're -- I think you were sort of indicating that when you remove some of the noise in foreign currency shifts that premium growth in the quarter, I think if I caught it right it was about 7% year-over-year. And at or around that level if you maintain it, how can we think about before you get into other forms of capital deployment? How do we think about free cash flow as a percentage of your earnings?

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

Yes. John, I think the best way to characterize it is we're still -- and it fluctuates around as you can appreciate us given the mix of business and so on but we're still before deploying it back -- capital back into the in-force transactions. We still feel that sort of that $300 million to $500 million range on an annual basis and that's after normal dividends is still the right range. And again it's going to be a little bit fluctuating over time but that's still our best estimate at this point.

John Nadel -- UBS. -- Analyst

Okay. All right. That's helpful. And then maybe a question for Anna. Just we've seen one long-term care transactions take place with one of your competitors taking on a pretty sizable block. There has been obviously -- there's been some other sort of financial motivated kinds of players who have fought (ph) more openly and willingly about trying to get into that market and do some deals. Is your attitude changing at all? Do you see some of the charges being taken as you see some of the underlying assumptions supporting current reserves changing and maybe getting a bit more conservative? Is your attitude changing at all toward that?

Anna Manning -- President and Chief Executive Officer

John, no. There is little change in our position. We're not actively looking at legacy LTC blocks. Look, we just don't think that we're the best buyers for the legacy blocks in the market and so they remain low on our priority list.

John Nadel -- UBS. -- Analyst

Fine answer. And then last one is just to think about Langhorne and any activity or opportunities that you feel are getting closer to a finish line? Any update there?

Anna Manning -- President and Chief Executive Officer

Well we're certainly active. Langhorne is pursuing the larger deals and we are seeing a good pipeline for those larger deals. And as I mentioned earlier with rates moving up, we feel that that will continue if not potentially improve. Now the larger deals are generally more complex and they do take time. And we need that time to spend an appropriate amount of time on analyzing and doing our due diligence on both assets and liabilities. So -- and Langhorne investors can expect the same level of diligence on those deals as we do on the RGA deals. So it means that they're going to be lumpy. Remember, we only stood up Langhorne in the first quarter. So speed here is not the goal. The goal here is finding the right opportunity and then working hard to win that transaction.

John Nadel -- UBS. -- Analyst

I definitely appreciate those comments. And maybe one way to help us understand where a line of demarcation might be. If -- I think you mentioned that one of the annuity deals you did was $2.8 million (ph) I think was the size of the block you mentioned?

Anna Manning -- President and Chief Executive Officer

Yes.

John Nadel -- UBS. -- Analyst

How high would that -- how high in size would that need to be where RGA would say -- probably too big for us but maybe we think about using Langhorne as the facilitator for that. Is that a -- is there a reasonable way to think about that?

Anna Manning -- President and Chief Executive Officer

Well not only is there a reasonable way. We've established guidelines as to what constitutes the Langhorne deal and what constitutes an RGA deal. And the greatest factor would be size. There would be other factors as well because we wanted to address any potential conflicts between RGA and Langhorne in advance. I can give you a sense that $2.8 million (ph) is very comfortably within our RGA's balance sheet capacity et cetera. Double that deal, it's starting to push. I would say anything north of that would indicate that that's more a Langhorne deal -- a better fit for Langhorne than it is for us.

John Nadel -- UBS. -- Analyst

That's very helpful. Thanks so much, Anna.

Operator

And we'll move on to our next question from Andrew Kligerman from Credit Suisse. Please go ahead.

Andrew Kligerman -- Credit Suisse. -- Analyst

Nice quarter. You're the only stock on my screen that's up today. So I thought...

Anna Manning -- President and Chief Executive Officer

We didn't notice that Andrew.

Andrew Kligerman -- Credit Suisse. -- Analyst

And up significantly. So on that topic, you did $109 million of buybacks this quarter that compares with $150 million last and $29 million in the year-ago period. How are you thinking about share repurchases now in the scope of deal activity that you just discussed extensively with John? Where do you see share repurchase going?

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

Andrew -- we as you know, we continually look at the transaction opportunities, our capital generation as well as we also like to keep a buffer of $300 million to $500 million although we will dip into that in appropriate circumstances or if we see attractive transactions. I will comment that and you mentioned it last year and even the year before, we were a little bit light on repurchase activity. So we did come into the year hoping to be more active on the repurchase front which we have been. And -- but we still -- it's certainly not a reflection of the active transaction pipeline that Anna commented on. It's just really, as we look at our capital generation, our stock did trade-off a little bit in the second half of the year. So we're quite pleased with the shares that we've repurchased.

Andrew Kligerman -- Credit Suisse. -- Analyst

Okay. So a lot of moving parts then, you can't really give...

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

Yes. It's not formulary (ph).

Andrew Kligerman -- Credit Suisse. -- Analyst

Okay. And as I think about your global premium growth, you back out some currency and what happened with EMEA, it seems like it's 7% this quarter. Is that kind of a run rate that you would like to see over the next several years -- is upper single-digit where you think RGA can continue to go?

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

Over the intermediate term, we think mid -- high-single digits is the place that we should be able to achieve. And we'll be very happy with that. And again, lot of our businesses don't generate premiums, a lot of our financial solutions businesses add nicely to our profitability but don't necessarily add to premium. So the combination of growing the traditional business at that mid- to high-single digits combined with our -- some of our financial solutions growth equates to some nice business growth overall

Andrew Kligerman -- Credit Suisse. -- Analyst

Excellent. Thank you so much

Operator

(Operator Instructions) We'll move on to our next question from Dan Bergman from Citi. Please go ahead

Dan Bergman -- Citi -- Analyst

Thanks. Good morning. I guess, there's some weakness in the Australia disability result. I just wanted to see if you could provide some more color on what you saw on Australia in the quarter? And any sense of how unfavorable the results were relative to your expectations? And then, I guess, just stepping back, I wanted to see if there is any update on Royal Commission process or your general outlook in the country?

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

Yeah. So we did see some modestly unfavorable experience in both the group and in individual DI portfolios. We continue to look closely to see if there's any underlying trends emerging on that type of thing. We did see some reopened claims and -- which we don't like to see, but there are some reopened claims. To may be size it, we would plan to be profitable for the quarter. And we had, if I'm thinking about it correctly, pre-tax loss of about $8 million for the overall Australia segment.

And then on the Royal Commission, yes, we continue to monitor what's going on with the Royal Commission. It's scheduled to be completed by the end of this year. So let's -- right now, let's say we don't see any direct impact on claims activity and how clients are adjudicating and managing claims although we're going to keep a very close eye on it. And as we get into the beginning part of the year, we'll be able to assess a little bit more, but clearly there could be some indirect impact. But, again, it's too early to give you definitive information on that.

Dan Bergman -- Citi -- Analyst

Got it. Great. And then I was just hoping you could provide a little more color on some of the moving pieces in the Corporate segment in the quarter. I just wanted to see if there is spillover of some of the one-time project and regulatory cost that you saw in the first half of the year and kind of how much if any variable investment income benefit hit the segment. Just big picture going forward, are we still kind of in that $20 million to $25 million range for quarterly loss?

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

Yeah. So for the quarter, we had a little bit of spillover on the project cost but nothing as significant as we saw in the first half of the year. Some of the cost dynamics in this quarter was some compensation and long-term incentive accruals as we true up our accruals for some of the sort of multi-year payout plans. And we normally do that in about this time of the year.

As far as the variable investment income, I think I mentioned the run -- for the -- compared to the run rate for the -- normal run rate for the quarter, we're about $11 million or $12 million over that. And I would say, about half of that would be in the Corporate segment.

For the fourth quarter, I don't think we would dramatically change our sort of expected run rate of that $20 million to $25 million loss in the Corporate segment, but we'll be looking at it closely as we go into next year and we provide no guidance late in January, because -- as you mentioned, Dan, there are some moving parts there as some of the things -- some of our newer initiatives are in the Corporate segment.

Dan Bergman -- Citi -- Analyst

Got it. It's very helpful. Thank you.

Operator

And we'll take our next question from Alex Scott from Goldman Sachs. Please go ahead.

Alex Scott -- Goldman Sachs -- Analyst

Hi. Good morning. First question was just on the changes FASB changes to US GAAP accounting. I guess, just high-level, any commentary you can provide on any impact that will have on your business? And then, I guess also just any impact do you think it will have on your pipeline for opportunities to deploy capital?

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

Yeah. So the targeted improvements -- it's early days. The statement was issued back -- I think, it was back in August. We certainly have resources in a project under way to look at the adoption of this standard. Given that a large part of our business will be subject to the standard, we'll have an impact, but it's still too early days to give you anything definitive of what that will look like. But -- certainly as time goes on, we'll have a better information. And again, it's something that we're -- have a quite a bit of resources starting to look at.

Anna Manning -- President and Chief Executive Officer

And with respect to potential impact on pipelines, I would say that again that's also too early to tell. All our clients are probably at similar stages to RGA, which is really to, first and foremost, really understand what those changes will do to earnings profiles and capital, et cetera. So, I would say too early to tell but we're certainly very focused on it.

Alex Scott -- Goldman Sachs -- Analyst

Maybe if I could just do a quick follow-up on, I guess RGAx. Any update you can provide on some of the investments you've done there? Any kind of developments, any anticipation to expand that platform would be great.

Anna Manning -- President and Chief Executive Officer

Yeah. So, we have a number of active projects under way in several markets. The way we're approaching this is, we're working very closely with our clients and entrepreneurs to jointly co-develop solutions. So, solutions around four pillars -- our four pillars anyway, technology distribution, digital distribution, data, and customer engagement. Still early, but a lot of interest from our clients and we're particularly happy with the approach we're following and the structure because it's been quite agile. So we move quite quickly, learn adjust and we're looking forward to developments in good time.

Alex Scott -- Goldman Sachs -- Analyst

All right, thanks.

Operator

And we'll take our next question from Jimmy Bhullar with JPMorgan. Please go ahead.

Jimmy Bhullar -- JPMorgan -- Analyst

Hi, good morning. Some of my questions were answered, but I had a couple more. On the Asia business, your earnings have been pretty high the last couple of quarters. To what extent is just normal sort of volatility in the business going in a favorable direction as opposed to a sustainable number?

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

Yes. So part of it's volatility just relating to client reporting and some of it is good experience on the underlying business. But I'll go back to -- if you look at for Asia excluding the Australia business, our best estimate right now for the average run rate would be that $35 million to $40 million pre-tax.

Jimmy Bhullar -- JPMorgan -- Analyst

Okay. And then, on share buybacks and there was a question on this before as well. To what extent were you motivated by just the low stock price versus maybe you having extra capital coming into the year? I'm just trying to get a sense of like the -- your stock did decline a lot in the beginning of the third quarter as well. So should we assume that you would have been active at that point also or have you exhausted most of your buyback for this year?

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

At the end of the third quarter, we still have about $114 million of our existing authorization in place. As I mentioned earlier, we did want to take some shares out given we have been a bit of light the previous couple of years and our capital generation has been fairly, fairly good. So the price has a factor but it's certainly not the only factor when we're looking at the share repurchases.

Jimmy Bhullar -- JPMorgan -- Analyst

So, would you rule out additional share buybacks this year or is that still likely?

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

Well that's something we'll be -- Jimmy that's something we'll be evaluating as we go forward here.

Jimmy Bhullar -- JPMorgan -- Analyst

And then, on the capital that you put to work on block deals, what are like the typical sort of financial metrics that you're looking at to get from or the return that you're looking at to get from that? And how soon would you get to that? Like is there an initial build up or should we assume that the $190 million will generate whatever ROE you're targeting next year?

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

Again, on average, I think we've been pretty consistent that target overall about a 13% return overtime on deployment of the capital. You know that's certainly just the way the deals work and as well as the accounting works. That does ramp up overtime. It can take several quarters to get to the peak return

Jimmy Bhullar -- JPMorgan -- Analyst

Okay, got it. Thank you

Operator

(Operator Instructions) We'll move on to our next question from Tom Gallagher from Evercore. Please go ahead

Tom Gallagher -- Evercore -- Analyst

Good morning. A number of primary companies have been calling out increased reinsurance rates that are being pushed through, some are recapturing, some are paying the higher prices. Have you been doing much of this, and what impact is that broadly having on the business, do you think? Are session rates moving down or -- any thoughts on that broader trend?

Anna Manning -- President and Chief Executive Officer

Yes. So we are aware that some competitors, and they've have been public, about broad-based rate increases and also some situations where they've ended up having to make recapture payments to their clients. This isn't the strategy that we're pursuing. We monitor the business quite closely. We're not seeing a deterioration in performance since we last updated our expectations back at the tail end of 2015.

You know the way that we think about our in-force management is really consistent with how we think about client relationships. So that is, we're going to take a long-term view and look at the overall balance of the relationship with each client. And with that lens, if we do see that it's not imbalance, then our approach is to sit down, have conversations, discussions with those clients to see if we can find ways to reestablish that balance. So I would say to you, yes we're aware of the activities that you described but we're not following that approach.

Tom Gallagher -- Evercore -- Analyst

And Anna, would you say, based on the performance and the experience that you're seeing and obviously competitors must be seeing different performance. Can you, when you look or try and triangulate and understand why your book is holding up better, are you able to trace it back to pricing, different decisions that were made at different points in the market? Does it go back to the -- that late '90s to mid-2000's? Like, was your pricing or market share very different back then?

Anna Manning -- President and Chief Executive Officer

Yes, all of those things. So if you take a look at market share during that era, we were losing market share. And our prices -- we were losing market share because our prices were generally higher than the competition. We also have grown our business organically as opposed to acquisitions. So again if you look at some competitors they were active in acquiring blocks during that period. So I would say it's a combination of the distribution of the underlying business. We have a nice block before that era, a nice block subsequent to that era. We weren't -- I can't remember -- I'm pretty sure we weren't in the top three reinsurers in terms of market share back then and we kept price discipline.

Tom Gallagher -- Evercore -- Analyst

Got it. And then, just one last question. We -- at least last year there was definitely -- have a correlation we saw about the Australian flu season kind of being a good leading indicator of the US flu season which last year was obviously quite severe. And if you extrapolate that this year, it looks like it's far more benign, it's far more favorable. Is that something you guys have paid attention to and think is a decent leading indicator or have you not seen that connection or correlation?

Anna Manning -- President and Chief Executive Officer

Yes. No, so we pay attention and it's really nice to see that the flu in Australia is the H1N1 strain which is generally more a benign strain. So that's a good sign. However, this is no guarantee that that will also be the strain that comes across to North America and there really isn't, in our view, a direct correlation. So, would be a good thing if that were the strain, but there is no absolute certainty that that's what we'll be facing in the coming winter.

Operator

And there are no further questions at this time. I would like to turn the conference back to our speakers for any additional or closing remarks.

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

Well thank you everyone for joining us on our third quarter call this morning and we look forward to talking going forward. Thank you.

Operator

This concludes today's presentation. We thank you for your participation. You may now disconnect.

Duration: 45:36 minutes

Call participants:

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

Anna Manning -- President and Chief Executive Officer

Kenneth Lee -- RBC Capital Markets -- Analyst

Erik Bass -- Autonomous Research -- Analyst

Ryan Krueger -- KBW -- Analyst

Humphrey Lee -- Dowling & Partners. -- Analyst

John Nadel -- UBS. -- Analyst

Andrew Kligerman -- Credit Suisse. -- Analyst

Dan Bergman -- Citi -- Analyst

Alex Scott -- Goldman Sachs -- Analyst

Jimmy Bhullar -- JPMorgan -- Analyst

Tom Gallagher -- Evercore -- Analyst

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