RGA - NYSE

Good morning, and welcome to the Reinsurance Group of America Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jeff Hopson, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Welcome to RGA's Third Quarter 2025 Conference Call. I'm joined on the call this morning by Tony Cheng, RGA's President and CEO; Axel Andre, Chief Financial Officer; Leslie Barbi, Chief Investment Officer; and Jonathan Porter, Chief Risk Officer. A quick reminder before we get going regarding forward-looking information and non-GAAP financial measures. Some of our comments or answers 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 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. Throughout the call, we will be referencing slides from the earnings presentation, which again is posted on our website. And now I'll turn the call over to Tony for his comments.

Good morning, everyone, and thank you for joining us. I am delighted to share that we have had a very strong third quarter, as demonstrated by the continued successful execution of our strategy as well as the record financial performance we delivered. Let me open with a few key highlights. Firstly, we reported record operating EPS, excluding notable items, of $6.37 per share. These results were strong and above expectations. We had excellent performance overall with particularly good results in Asia Traditional and EMEA and U.S. Financial Solutions. Our diversified global platform continues to deliver significant long-term value. Secondly, we are seeing a positive contribution from the Equitable transaction, which closed this quarter. Thirdly, new business momentum remains strong, as evidenced by our premium growth and capital deployment into in-force transactions. We are seeing good year-to-date contributions from across our geographies. Our competitive advantages continue to differentiate RGA, leading to good new business results, a robust pipeline and the ability to be selective on the opportunities we pursue. Next, during the quarter, we repurchased $75 million of common shares. We will continue to balance investing our excess capital into the business and returning it to shareholders in a manner that allows us to execute our strategy and meet our financial targets over time. Finally, we continue to make progress on other strategic initiatives, including the utilization of Ruby Re and the successful execution of in-force management actions. All of these position us for continued long-term success. Let me now provide a few more details on the quarter, including highlights from across our regions, starting with North America. We continue to exceed our new business targets for the traditional business, driven by our strong underwriting capabilities. We closed a significant number of new deals in the quarter and reached a record number of underwriting applications. One of these deals was an enhancement of our strategic underwriting program with a digital solution that enabled us to partner exclusively with a key client that has a strong brand and a large distribution footprint. These initiatives differentiate RGA and represent an increasing portion of our U.S. business. This is yet another example of what RGA has done for over 50 years and continues to do its best, which is to be innovative and the leader in underwriting. Also, as indicated, the Equitable transaction closed in the quarter, and we recorded a full quarter of earnings in this period. Results were in line with our expectations. The asset portfolio repositioning is progressing as planned, and our previous guidance on the expected future earnings remains unchanged. Along with the financial gains, the partnership is yielding strategic benefits through increased underwriting services, product development, asset management and participation in our Ruby Re sidecar. The depth and breadth of this partnership is one example of the win-win opportunities for the benefit of both RGA and our clients. Moving to Asia Pacific. The region continues to perform very well. Traditional results were particularly strong this quarter, continuing its trend of excellent growth and bottom line results. We continue to delight our clients by staying at the forefront of innovation and helping them navigate evolving strategic needs. Our strategy in Hong Kong is to deliver holistic solutions combining product development, capital solutions and technology-enabled underwriting capabilities. We recently won the prestigious Hong Kong Federation of Insurers' Outstanding Reinsurance Scheme Award. Recognizing one of these holistic solutions. We expect this to lead to repeat transactions of this nature in Hong Kong. In addition, we've been able to leverage these strengths across the region. This was best demonstrated in Mainland China where recent regulatory changes allow participating critical illness products like the ones in Hong Kong to be sold. RGA co-developed a first of its kind critical illness combination product, and early sales performance has been strong. In Korea, RGA remains the market leader in product innovation. Building on the success of last year's cancer treatment product, which launched with 19 clients, we introduced the second-generation version of this product, and our clients have already sold over 1 million policies, demonstrating the strong market demand. Finally, in the EMEA region, RGA remains a clear market leader, and Q3 results reflect that. We successfully closed multiple transactions across the region and across a range of product lines. The strong client satisfaction from RGA executing on our promises will lead to repeat opportunities. In addition, we closed a market-first transaction in Switzerland. This follows our success in Belgium last year in a similar market first and shows Continental Europe is opening up to asset-intensive reinsurance. I firmly believe we are best positioned in this market, and our innovation will continue to drive growth in the region. Reflecting on the activity from across the globe, I am very pleased with our Traditional business results. Traditional business premiums are up 8.5% year-to-date on a constant currency basis, with good growth across regions and we can rely on this business year in, year out, giving us a strong foundation for continued earnings growth. Now with regards to transactions, we have deployed $2.4 billion of capital year-to-date. This comprised of $1.5 billion into the Equitable transaction and $900 million of capital into over 20 other transactions spread around the globe. These are high-quality transactions that don't always make headlines due to their more modest size, but are equally important as they form a regular base of business that we can also rely on year in, year out. They leverage our long-standing client relationships, our strength in biometric risk and often our repeat transactions that are well within our sweet spot. As you can see from these examples, the new business success in all 3 regions are the result of our now well entrenched Creation Re business approach. This approach proactively provides holistic and innovative solution, leveraging our competitive advantages and often leads to exclusive and repeat business. Over the past 2 years, this approach has driven expected lifetime returns of all new business across the company above our target range. Looking forward, our new business pipeline is strong across all 3 regions, and we will continue to select the best opportunities based on our expected returns, risk appetite and other strategic considerations. Another highlight is that the value of in-force business margins increased by 16% over the past 3 quarters. This is a measure of our efforts to create long-term value through new business and other management actions and indicates our success in building a sustainable and successful future. Finally, it is very gratifying that we can provide an attractive combination of organic growth and are in a strong capital position that enables us to fulfill our healthy pipeline and return a meaningful amount of capital to shareholders. So to sum up, we have had an excellent third quarter with many highlights. We are well positioned in the right markets with the right teams executing with the right strategies and have full confidence that the best is yet to come. I will now turn it over to our CFO, Axel Andre, to discuss the financial results in more detail.

Thanks, Tony. RGA reported pretax adjusted operating income, excluding notable items, of $534 million for the quarter or $6.37 per share after tax. For the trailing 12 months, adjusted operating return on equity, excluding notable items, was 14.2%. Results were strong this quarter and above expectations. Momentum across our business remains good, and we saw notable strength in Asia Traditional and EMEA and U.S. Financial Solutions. As Tony mentioned earlier, we closed the Equitable transaction and recognized a full quarter of income. Results for the block continue to be in line with expectations. As a reminder, this block is expected to have a highly diversified sources of earnings, split roughly between fee income, underwriting margin and investment spread. This is one of the reasons the transaction was so attractive to us. Given the diversified sources of earnings, this is immediate earnings impact as well as incremental ramp-up as some of the assets are repositioned. The portfolio repositioning is on track and was approximately 75% complete at the end of the quarter. The remainder will occur over the next 6 to 9 months. During the quarter, we deployed $233 million of capital into in-force transactions in addition to the previously announced $1.5 billion into the Equitable transaction. We also completed $75 million of share repurchases at an average price of $184.58. Our capital position remained strong, and we ended the quarter with estimated excess capital of $2.3 billion and estimated deployable capital of $3.4 billion. The effective tax rate for the quarter was 19.6% on adjusted operating income before taxes, below the expected range of 23% to 24%, primarily due to the jurisdictional mix of earnings. We still expect a tax rate of 23% to 24% for the full year. Our Traditional business premium growth was 8.5% year-to-date on a constant currency basis, which has benefited from strong growth in the U.S., EMEA and APAC. Premiums are a good indicator of the ongoing vitality of our Traditional business, and we continue to have strong momentum across our regions. Turning to biometric claims experience, as outlined on Slide 9 of our earnings presentation, Economic claims experience was favorable by $5 million in the quarter, primarily driven by APAC and Canada, partially offset by the U.S. Traditional segment. The corresponding current period financial impact was unfavorable by $50 million. Claims experience in U.S. individual life and group were modestly unfavorable. As discussed last quarter, our expectation was that the group business overall will be approximately breakeven for the second half of the year, and that remains true. Over the longer term, economic claims experience for the total company has been favorable by $277 million since the beginning of 2023 when we more fully emerged from COVID. As a reminder, the favorable economic experience that has not been recognized through the accounting results will be recognized over the remaining life of the business. I'll now make a few comments on the notable items reported in the period, which relates to the results of our annual actuarial assumptions review, the overall economic impact of the assumptions update is positive from a long-term value perspective and future run rates. As presented on Slide 7, the impact is split into 2 components: a negative $149 million current period impact due to LDTI cohorting and a positive $600 million impact to long-term value. Said another way, if LDTI did not exist, the total impact is a benefit of $450 million. These updates will increase annual run rates by $15 million, gradually increasing to $25 million annually by 2040. Moving to the quarterly segment results on Slide 6. The U.S. and Latin America Traditional results reflected modestly unfavorable claims experience, partially offset by the favorable impact from in-force management actions. In our group business, as mentioned, results were approximately breakeven and in line with our updated 2025 expectations, and the block will be fully repriced by January 2026. The U.S. Financial Solutions results reflected the contribution from the Equitable transaction, partially offset by lower variable investment income. The results from the Equitable block were in line with expectations. For the full year, we still expect this transaction to contribute around $70 million of pretax income, increasing to $160 million to $170 million in 2026 and approximately $200 million per year by 2027. Canada Traditional results reflected unfavorable group experience, partially offset by favorable individual life claims experience. The Financial Solutions results in Canada were in line with expectations. In the Europe, Middle East and Africa region, the Traditional results reflected favorable underwriting margins. EMEA's Financial Solutions results reflected favorable longevity experience and continued growth in the segment. This segment continues to be a bright spot for us. Turning to our Asia Pacific region. Traditional had another good quarter, reflecting favorable claims experience and the benefit of ongoing growth. This segment continues to perform at a high level, a reflection of our excellent competitive position and our execution of value-added solutions to clients. Financial Solutions results were in line with expectations with a modest unfavorable impact from lower variable investment income. Finally, the Corporate and Other segment reported an adjusted operating loss before tax of $58 million, unfavorable compared to the expected quarterly average run rate. This was primarily due to lower variable investment income and higher general expenses. Moving to investments on Slides 10 through 13. The non-spread book yield, excluding variable investment income was slightly lower than Q2, primarily due to higher levels of cash for part of the quarter. The new money rate remains well above the portfolio yield, providing a tailwind to our overall book yield. Total variable investment income was below expectations by around $40 million, primarily due to lower real estate joint venture activity. Overall, our portfolio quality remains high and credit impairments are better than expectations for the year. Notably, we have zero direct exposure to the recent auto sector bankruptcies. Turning now to capital. Our excess capital ended the quarter at an estimated $2.3 billion and our deployable capital was an estimated $3.4 billion. It's important to note that we manage capital through multiple frameworks, including our internal economic capital, regulatory capital and rating agency capital. From a regulatory lens, we maintain ample levels of regulatory capital in the jurisdictions where we operate. Also, our strong ratings are important to our counterparty strength. Thus, we manage our rating agency capital to support these ratings. On a holistic basis, considering all capital frameworks, we are well capitalized. In the quarter, we successfully retroceded a midsized block of U.S. PRT business to Ruby Re and we are actively working on additional retrocessions. We still expect the vehicle to be fully deployed by the middle of 2026. Looking ahead, we will balance capital deployment into the business with returning capital to shareholders through quarterly dividends and share repurchases. Our intention remains to be opportunistic with share repurchases quarter-by-quarter, depending on our capital position, a forward view of our transaction pipeline and valuation metrics. Over the longer term, we expect total shareholder return of capital through dividends and share repurchases to range between 20% to 30% of after-tax operating earnings on average, consistent with our long history. During the quarter, we continued our long track record of increasing book value per share. As shown on Slide 17, our book value per share, excluding AOCI and impacts from B36 embedded derivatives increased to $159.83, which represents a compounded annual growth rate of 9.7% since the beginning of 2021. Moving to Slide 18. We provided an update on the value of in-force business margins, which significantly increased since the end of 2024, reflecting the very strong new business momentum. Overall, we believe this is an additional lens through which to assess the long-term earnings power of our business that will emerge over time, and we are pleased with the results. All in all, this was a great quarter with strong operating results. In addition, we continue to advance many strategic objectives. Our long-term strategy remains well on track, and we are confident in our ability to deliver on our intermediate-term financial targets. We continue to see very good opportunities across our geographies and business lines and remain well capitalized to execute on our strategic plan. We also believe we are in a position to return excess capital to shareholders through dividends and share repurchases. With that, I would like to thank everyone for your continued interest in RGA. This concludes our prepared remarks. We would now like to open it up for questions.

[Operator Instructions] And your first question today will come from Wes Carmichael with Autonomous Research.

First one was just on the U.S. claims activity in Traditional in the quarter. Just wanted to see if you would unpack current experience, if that's just normal volatility in your view, if there's any onetime-ish kind of items in there.

Yes, Wes. Thanks for the question. On the U.S. Trad side, so we had about $30 million of claims experienced from -- of negative claims experience on the individual life side, that's really kind of normal volatility. If you look at it on a historical basis, it's well below a standard deviation. So frankly, modest noise there. And then on the group side, as indicated last quarter, and consistent with the expectations that we had set, we had about a $20 million negative experience.

Got it. And maybe sticking with that segment, U.S. Traditional in the current quarter. Were there any onetime items that impacted premiums? It looks like premium growth was a little bit softer there than the rest of the enterprise. And if so, what was kind of the underlying growth rate there?

Yes. So on the U.S. premium side, so in the quarter, we had an in-force action, so a recapture of a treaty, which resulted in a positive impact to the results of about $20 million. And so the flip side of that is that we didn't record the premiums that we would have got from that treaty. And so that's really the main driver for the reduction in premiums.

And your next question today will come from John Barnidge with Piper Sandler.

There was a recent report in September from Swiss Re suggesting a mortality reduction from GLP-1 drugs of up to 6.4% in the U.S. and 5.1% in the U.K. How soon would it make sense to maybe recognize that benefit either on pricing or in your assumptions?

John, thanks for the question. This is Jonathan. So we haven't made any material changes to our assumptions due to anti-obesity medication, but the benefits from these medications have increased our confidence that our existing mortality improvement assumptions will be realized in the future. We've done some significant modeling and analysis, and we continue to believe that anti-obesity medications, including GLP-1s, will have a meaningful benefit on population-level mortality. And going forward, we'll continue to regularly assess the data and our model and expectations as to how this population improvement translates through to our insured book of business. Specifically for the study that you referenced, our analysis is generally aligned with a central estimate that Swiss Re has as well. So our numbers are consistent with their central estimate. I think the numbers you quoted were on the high end of their estimate.

Yes, those were the bull case outcomes. My follow-up, I believe the lift to annual run rate is $15 million over the intermediate term and would be expected to grow. To what level would it be expected to grow in the max year?

Yes. So thank you, John. So just to clarify, I think you referred to the impact of the actual assumptions update. As I mentioned, there's the accounting impact and there's the kind of long-term value impact, the $600 million, which will be recognized over time. That $600 million essentially will increase our run rates by $15 million next year, so annual increase of $15 million which then gradually ramps up to a $25 million increase to the annual run rate by 2040.

And your next question today will come from Jimmy Bhullar with JPMorgan.

I had a couple of questions. First, just on your expectation for Ruby Re, you mentioned you expect it to be the pipeline to be filled or your -- whatever your intentions were in terms of business activity. What type of liabilities are you considering for the structure and obviously, there's a lot of demand for reinsurance or deals on some of these legacy liabilities. To what extent do those fit in your plans as well? And then I have a follow-up.

Sure. Thanks for the question. Yes, so Ruby Re, so we were pleased to see another transaction seeded into the vehicle this quarter. As you may recall, the vehicle was set up to really take in U.S. asset-intensive type transactions. In terms of -- we have a pipeline of transactions that we already have on our books that we're working through the process of seeding into the vehicle, which is why we're saying we have the confidence that we will be fully deployed by the middle of 2026. I think just taking a step back, we've mentioned that sidecars, third-party capital is a core component of our strategy. We expect in the future to be pursuing other sidecars and for that to be a nice supplement to our ability to deploy capital over time.

And then the type of liabilities include just annuities or like LTC VAs with living benefits as well?

So Ruby Re is really focused on relatively simple liabilities, what we call asset intensive. Those are things such as pension risk transfer. Other types of liabilities that have some biometric risks but that are relatively vanilla. As we explore new vehicles, further vehicles, we will also potentially open the aperture of liabilities. But I want to make clear that we focus on what -- where our expertise is. Our expertise is in combining the 2 sides of the balance sheet, the biometric risk and the asset side in the types of transactions that we have a track record of executing. So the intent is not to open new avenues that we have no expertise or track record in.

And your next question today will come from Ryan Krueger with KBW.

I had a question on in-force actions. You've done a number of things over the last few years. I was just hoping to get an update on how far along you think you are at this point? And in the kind of opportunities that you still have going forward to do more actions on the in-force.

So maybe I can get started just in terms of the numbers and pass it on to Tony. So in-force actions, we've talked about it on a number of calls. We had significant contribution to earnings in 2023, 2024. If you recall, at the beginning of the year, when we talked about our intermediate-term financial targets, we said that we were expecting about $50 million a year of in-force actions. Of course, it's -- as we said, those can be lumpy. And so we -- at times, you can have a year where you are well above the $50 million, potentially below. This year, 2025, year-to-date, we're at about $45 million of cumulative in-force actions. So it's nice and on track and consistent with that run rate. And then we have a number of opportunities to continue to execute on in-force management actions throughout the book.

Yes, Ryan, maybe just to add, this is a discipline that I would argue, started in the U.S. before, but it's very much around the globe. So even this quarter, we're seeing those actions, it's not just the U.S., it's across the globe. So that's the first point. And then the second point is, I want to emphasize, that's why risk management is so critical for us. We're all over the risk. And then it's a question of, okay, how do we -- once we fully -- as we fully understand the blocks of business, we then leverage off our strong partnerships with our clients to come up with true win-win solutions, oftentimes as we go through these conversations with our clients. It really hasn't impacted our ability to write new business with them. Sometimes it actually strengthens it because you're getting through potentially tough conversations in the right manner. So we're very delighted with our approach. And as Axel said, we continue to deliver on it. We don't -- it's not drawing up in any way. It's just an ongoing part of our business that we expect to continue to do going forward.

And then I had a follow-up. I guess going back to last quarter on the value in-force benefit to excess capital. It seems like there's been some skepticism from -- that this is not from you, but from others about if this is fully -- if that benefit is fully able to be deployed into growth going forward. So I guess I just wanted to just come back to that and confirm that like there's no restrictions on that. You have the full blessing from rating agencies, and that's a part of your capital that you can deploy now going forward?

Yes. So thanks, Ryan, for the question. So let me -- first, let me say that, yes, we -- this capital represents real capital that is available to be deployed into transactions. But let me take a step back and remind you, our excess capital is really across all 3 frameworks: economic capital, regulatory and rating agency. And we really look at what is the binding constraint. So we have at least that amount of excess capital from each of the following lenses since we take the binding constraints. I think everybody would recognize that from a regulatory capital perspective, that is capital that is there in the legal entities available to be deployed. Obviously, there's different regulatory frameworks and different legal entities, but real capital available to be deployed. So the recognition of this value of in-force to your point is from a rating agency perspective. I want to remind you that we recognize only a portion -- the value in-force for only a portion of our block. And even when we do, there's a significant haircut that is applied to that value of in-force within the rating agency frameworks. That value of in-force does amortize over the life of the business. But over time, we expect to add further to our store of value of in-force by looking at our in-force, the blocks that have not been evaluated by the rating agencies as well as new business. And just to point to one item, if you look at our value of in-force business margin exhibits in the presentation, the growth of that by 16% since -- over the first 9 months of the year, shows that there's a robust growth in our store of value of in-force and the potential to recognize that capital from a rating agency perspective.

Ryan, let me just add one other point. I know you were referring to deployment into the business. With regards to, let's say, potential buybacks, we've indicated how much we're going to -- we're planning to return to shareholders. But just to answer your question, there is -- the only criteria we would look at beyond the strategic ones with regards to buyback would be, do we have sufficient liquidity and our leverage ratios? Otherwise, this capital is fully available to buyback. So I just want to add to Axel's comments.

Our next question today will come from Wilma Burdis with Raymond James.

Regarding the U.K. mortality assumption review impact, are those claims that you're seeing today? Or is it more of a long-term expectation for higher mortality? And could you also just provide some color on what you're seeing in terms of U.K. mortality trends?

Wilma, this is Jonathan. Thanks for the question. So part of the assumption review this quarter, we've increased our expectation for future U.K. mortality, and that's resulted in an increase in future mortality claims and an offsetting decrease to future longevity claims. So this change in assumptions reflects ongoing excess mortality we're seeing in the U.K. population, which likely reflects challenges with the National Health System as well as a thorough review of recent experience in our own book of business. Under LDTI, as Axel mentioned, most of this U.K. mortality impact is recognized in the current period as the strengthening of reserves on capped cohorts and the benefits of the longevity business are deferred and amortized into future periods. So on a net economic basis, looking at both mortality and longevity combined and just looking at the U.K. specifically, it's actually pretty neutral. So that's given our balanced book of business. There's not much net economic effect of the changes.

Okay. Now that the -- second question, now that the Equitable block is closed, could you provide a little bit more color on your expectation for accounting smoothing on the mortality on that block?

Sure. Yes, sure. Thanks, Wilma. Yes, for the Equitable block, there will be accounting smoothing of volatility. We expect roughly about 50% of that block to be to -- to benefit from that smoothing of results over time.

And your next question today will come from Alex Scott with Barclays.

First one I had is just on the group headwind that you guys have had from the medical piece of things. Can you talk about what you're seeing there, the kind of repricing you're taking? And just any further commentary on the trajectory there?

Sure. I can start here. Look, on the group side, like we mentioned last quarter, it's short-term business, right? So it all gets repriced over the course of the year. And as we mentioned, we had started to take repricing actions by Jan 1, 2026. By Jan 2026, all of the block will be repriced. And so from there on, we have expectations of profitability for all segments of the group business.

Got it. The second one I have is maybe a little bit more of a pointed question, so apologies in advance. But as we kind of go around and talk to industry participants and go to some of the conferences and so forth, one of the things that comes off, and I think -- look, I think some of the investors are hearing these kind of things, too, is that RGA is getting more competitive, getting more aggressive, maybe accepting lower IRRs to win business. And I think it's important to kind of hear your retort on it just because it does seem to be something that impacts your stock. And so I'd love to just kind of get your point of view on, is that just sort of [ sour grades ] because you guys are winning? Or is there more to it? I just want to see what your response is to those kind of comments that we're hearing.

Yes, Alex, let me take that. Look, there's a lot there. Firstly, with regards to risk -- taking risk, there's been no change in our risk tolerance, our risk appetite, our processes, our leaders, our culture and we probably couldn't change it if we want it and why would we change it? It has been a huge competitive advantage for us in over 52 years. So -- and you can see it throughout the whole organization like even our business approach is all around discipline. Why do we just choose and select the business that we want, i.e., the business that is exclusive and plays to our strengths of local offices, our strengths of ability to do biometric and asset risk, our incredibly strong client relationships. It's purely because it is better quality business and in my mind, less risky than tendered business. And you see that not only in what we pursue, but also what we don't pursue. I mean, our name does not come up because we're not participating in many of the recent U.S. tenders for risks that are just not in our sweet spot. Number one, they're tenders. Like I said, we very much pursue exclusive transactions. And number two, they're not in our sweet spot. They're not the risks we like. So look, this has always been our approach. It will continue to be our approach. When I heard commentary like you suggested, it just took me back to the Asian days where when we started success 20 years ago. Of course, you're going to hear these things. That's what one would expect. We just follow our strategy, follow our culture. It hasn't changed and we're so excited about our future growth and our future returns that we can provide to shareholders.

The next question will come from Suneet Kamath with Jefferies.

So if I think back to when we started talking about LDTI, I think the commentary was this was supposed to be a benefit to RGA because of the smoothing and if I just look at recent results, it just doesn't seem like that's playing out. You're getting more of the bad than the good. And I was just curious, is this just because there's a larger portion of your block that's in capped cohorts, and that's what's causing it? Or can you give us a sense of what percentage of your business is capped versus uncapped. Because I just don't think we're seeing the smoothing that we expected when we first started to talk about this.

Sure. Thanks for the question. Look, I think we still believe that LDTI is a benefit in terms of smoothing results over time. Now that may not play out quarter-by-quarter exactly. I think if you look at the presentation in the recent quarters or if you look at older presentations that have a longer track record, you'll see that in general, the impact that comes through on an accounting basis is less than the economic. So there's some level of smoothing and some reduction of the noise there. Nonetheless, you're correct that when -- for those capped cohorts, the results flow through immediately and in capped cohorts over time, you would expect that over time, there will be some portion of cohorts that are capped. And that will result, therefore, in a bit more volatility on the negative side.

Yes. And then Suneet, just to give you a number to size it for you, for our traditional business and total across the world, about 15% of our business is in capped cohorts.

Suneet, just let me add one more point. I mean, look, these capped cohorts to us, like I said earlier, look, risk management is our DNA, our critical part, and therefore, these capped cohorts are obviously blocks we monitor very closely and a fertile ground for the in-force actions that you see us doing. And that's, as I said earlier, an integral part of our way of generating further profit and ROE.

Yes, No, that makes sense. And then I guess my second question is on the economic solvency in Japan. As I think about over the past couple of quarters, I think you guys have talked about that as an opportunity. But we're, I guess, a couple of quarters away from it actually being implemented. And I guess -- has it turned out to be the opportunity that you thought it was? Or were companies able to figure out solutions that didn't require RGA's capabilities? Just curious kind of where we sit there.

Yes. No. Thanks, Suneet. Look, I would say the first inklings of it driving opportunities was probably about 5 or 6 years ago. So it's not just switched the light on, and it becomes relevant. I mean, the companies have been preparing for this for a number of years. And as a result, we've been able to win good business. And I'd say it's been the essential part of why you're seeing increased activity in Japan on coinsurance of blocks. I mean, we -- our partners in the market are both obviously the local companies as well as some of the multinationals or global companies. So there could be other tools available for some of the global companies, they may have internal reinsurers and so on. But for us, it has been a driver of opportunity. It continues to be. We're very selective once again on what we pursue, which will predominantly be those blocks of businesses that have both biometric as well as asset risk as well as usually, it's going to be with long-standing clients that we may have had decades-long relationships with on the biometric risk side.

Our last question of the day comes from Tom Gallagher with Evercore.

If I look at the earnings power in the quarter, and I adjust for, we'll call it, the accounting noise in the capped versus uncapped cohort, I sort of unwind that, you get about $7 of earnings power in the quarter. Now that seems well above the kind of levels that you guys have guided to if I think about glide path. Now I'm assuming there was like significant over-earnings in some of the segments versus what you think is trendable, but can you help kind of unpack $7 and maybe getting us back to a more reasonable trend line because that does seem quite high?

Sure. Thanks for the question, Tom. Yes. So when we think of kind of what are the pieces in the earnings this quarter, so I think we talked -- we mentioned the claims experience. So overall, about $50 million and then the offsetting impact of in-force actions, which across the globe in the quarter is about $40 million. So $40 million of positive to offset some of that $50 million negative. We mentioned the VII, which is a headwind of about $40 million this quarter. And then on the tax side, we had a benefit. So yes, look, this was a really good quarter. We're very, very pleased. I think a lot of the result of capital deployment of earnings coming up, coming online. We've talked about kind of the ramp-up of earnings with -- as we do the portfolio repositioning. Obviously, we had Equitable, the transaction, which is one example of that capital deployment, but it's a lumpy one, and it came in this quarter. It's very tangible. So yes, look, things are clicking well. And so we're very excited about the earnings growth trajectory from here on.

Yes. And Tom, let me just add a couple of points. As we always say, and as you know, one quarter's results is just one quarter's results. So if you do a similar analysis for the year, we've had an excellent quarter. That's why we describe it that way. And for the year-to-date, we're having a very strong year-to-date relative to expectations. So I'd encourage you to just maybe look back over the 3 quarters. It's probably a better gauge of where we're at in terms of sustainable earnings power for '25.

Good point, Tony. My follow-up is on -- have you considered any partnerships with alternative managers. We've seen multiple primary life companies enter into these partnerships. And I guess what I wonder is, with the asset-intensive business, kind of a critical part of your growth. I wonder -- and with a lot of the competitors for those types of deals seemingly having, we'll call it, pretty enhanced alternative strategies, whether it's private credit or other things. Is that something that you'd consider?

Yes. Thanks for the question, Tom. Look, I'd say a few things. One is with regards to private assets, obviously, we do the bulk of it still internally, but we do have a number of external relationships where we feel it doesn't make sense for us to build the capabilities or they've got scale that we would not be able to achieve. So that's the fundamental principle in which we've been operating. But I really want to send you towards -- we don't compete on pure asset transactions. That is not our sweet spot. And to be honest, there's no point us really bidding too much on those types of blocks because we know our price probably will not be competitive. So that's why we always turn back to what have we -- does that asset transaction have material biometric risk, which obviously is our -- very much our sweet spot, is a leverage of relationships that we've maybe had for decades. So I really want to center that thought. Yes, we do a material asset reinsurance or asset-intensive reinsurance, but it always comes with biometrics. And a lot of the blocks, as I shared in my comments, are smaller in nature. They're not -- or more modest in nature. They're not always the headline grabbing ones because the ones that rely on those relationships and those partnerships, we're just servicing that client, that's asked us to help them for many, many, many years, and we continue to do that.

This concludes our question-and-answer session. I would like to turn the conference back over to Tony Cheng for any closing remarks.

Well, thank you for your questions and your continued interest in RGA. Our strong quarter and continued growth in long-term value continues to fuel future growth and returns for RGA. And this ends today's call. Thank you.