Reinsurance Group of America, Inc. (RGA) CEO Anna Manning on Q3 2018 Results - Earnings Call Transcript

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About: Reinsurance Group of America, Incorporated (RGA)
by: SA Transcripts

Reinsurance Group of America Inc (NYSE:RGA) Q3 2018 Earnings Conference Call October 26, 2018 11:00 AM ET

Executives

Anna Manning - President and Chief Executive Officer

Todd Larson - Senior Executive Vice President and Chief Financial Officer

Analysts

Kenneth Lee - RBC Capital Markets

Erik Bass - Autonomous

Ryan Krueger - Keefe, Bruyette & Woods, Inc.

Humphrey Lee - Dowling and Partners

John Nadel - UBS

Andrew Kligerman - Credit Suisse

Dan Bergman - Citi

Alex Scott - Goldman Sachs

Jimmy Bhullar - JP Morgan

Thomas Gallagher - Evercore ISI

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 Larson

Thank you. Good morning everyone and welcome to RGA's third quarter 2018 conference call. With me this morning in St. Louis in this morning is Anna Manning, RGA's President and Chief Executive Officer.

Anna 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 will 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 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 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 reconciliation 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 will turn the call over to Anna for her comments.

Anna Manning

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 U.S. individual mortality business, favorable experience in our EMEA segments, 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 source 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 include one large U.S. 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 a $109 million in the quarter. This brings our year-to-date capital deployment on in source 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 the 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 overtime. Our transaction pipeline continues to be very active and we remain optimistic about our ability to win our share of transactions overtime.

And with that, let me hand it back to Todd to provide more detail on our results.

Todd Larson

Thanks Anna. I will 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 dependant 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 source 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 rate and some mix of investments.

The effective tax rate on pre-tax adjusted operating income of 24.5% was slightly higher than expected range of 21% to 24% primarily due to the annual geographic mix of our earnings. On our 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 towards the higher end.

Now turning to our business segment results. The U.S. and Latin America traditional business reported pre-tax adjusted operating of $116.4 million versus the $162 million a year ago. The year ago period was particularly strong, individual mortality experience was favorable this quarter and variable investment income was above average.

However, our U.S. group business reported a loss again this quarter. In the year ago quarter, U.S. 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%, but after adjusting for the effects of the modification of an existing health treaty that we have 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 of unexpected 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 year 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 ingredients across most markets.

The recorded 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’s 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 the 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, experience 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 cash up premiums was 13% and 18% in constant currencies. Australia premiums were down 18% reflecting the effects of the treaties recaptured rate 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 in the year ago quarter. Both periods reflect the negative effects of a treaty and runoff, but to a lesser extend 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. 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 overtime, maintaining RGA as an attractive investment opportunity.

We thank you and appreciate your support and interest in RGA. And we will open the call for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we will take our first question from Kenneth Lee from RBC Capital Markets. Please go ahead.

Kenneth Lee

Hi thanks for taking my questions. Just one on the U.S. LATAM traditional business. In terms of the favorable individual mortality. Would you be able to give a little bit more detail was driven mainly by severity and frequency. And also in terms of the favorable variable investment income anyway you could quantify the impact in the quarter. Thanks.

Anna Manning

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 in Asia. So with no significant outliers, I would call this just a broad based period, normal volatility in a positive direction.

Todd Larson

Yes, and then Ken I will 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 to $12 million which is about $0.14 a share and I would attribute by about half of that to the traditional U.S. line.

Kenneth Lee

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 timeframe about like a year and half or so just wondering would that change? Thanks.

Todd Larson

On the U.S. group business?

Kenneth Lee

Yes that the U.S., LATAM group business.

Todd Larson

Yes for the group business yes we have talked about last quarter that the excess DI line and the excess healthcare or medical line performed unfavorably. And yes we are actively in the process of repricing that business. We are probably about the quarter of the way through repricing that business and then a large amount of the renewals come up January 1st. So we are actively actually 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

Okay. Great thank you very much.

Operator

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

Erik Bass

Hi thank you. A couple of things on just the block acquisition front. 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 U.S. and then you talked about still seeing attractive pipelines for deals. Are you getting a sense that activity levels are starting to pick up more broadly across the industry.

Anna Manning

Eric it's Anna again. So we did two material asset intensive deals both in the U.S. One was an individual annuities and payouts and the other was a fixed deferred annuity block. Competition is strong and was strong on those deals. We also did a few smaller financial reinsurance deals in both Europe and the U.S. in this quarter.

In terms of the pipeline, I would characterize it as strong and the market is very active. We are seeing a continuation of good deal flow again 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

Thank you. It’s 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 Larson

Sure. The let’s start with EMEA, as I mentioned in my comments, traditional had a favorable results on the traditional side and a very favorable result on the no financial solution 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 run-rate right now on average is about $50 million to $55 million pre-tax.

And then turning to Asia, excluding Australia, as we have mentioned there is a little bit of noise in there from client reporting time and et cetera but we would still view the run rate there for pre-tax income again on average of about $35 to $40 million in the near-term.

Erik Bass

Great. Thank you.

Operator

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

Ryan Krueger

Hi, good morning. Could you provide a little more detail on the expected earnings contribution from the import deals you did during the quarter and the time period it may ramp up.

Anna Manning

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

Ryan Krueger

Okay, thanks. And then actually just related I mean given that there is significant competition for asset intensive yields in the U.S. could you give a little perspective on how you were able to find the drivers of winning those deals?

Anna Manning

Yes, the reasons that we feel we win, I would point to 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 structuring expertise. We have a proven track record of execution certainty and that is important for some sellers and in some cases that is providing us with a last look on deals. So I would say you know those are the factors that are aiding us in wining some deals.

Ryan Krueger

Thank you.

Operator

And we will take our next question from the Humphrey Lee with Dowling and Partners. Please go ahead.

Humphrey Lee

Good morning and thank you for taking our question. Just a follow-up on Ryan's question about the U.S. 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 transaction like how much did these two transactions in U.S. asset intensive consumer of the 190 million of capital deployment.

Anna Manning

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

Humphrey Lee

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

Todd Larson

Yes, Humphrey, one thing that comes to mind is the ways the accounting works for some of the Fin 48 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

Okay. So you should go back to kind of roughly 37 million a quarter.

Todd Larson

Yes.

Humphrey Lee

Okay, alright, thank you.

Operator

And we will move onto our next question from John Nadel with UBS. Please go ahead.

John Nadel

Good morning. First question is just how to think about free cash flow when you are - I think, you were sort of indicating that when you removed some of the noise and foreign currency shifts that premium growth in the quarter, I think, if I caught it right 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 Larson

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

John Nadel

Okay. Alright, that is helpful. And then maybe a question for Anna. Just we have seen one long-term care transactions take place with one of your competitors taking on a pretty sizable block. Obviously, there has been some other sort of financial motivated players, who have thought more openly and willingly about trying to get into that market and to the deals. Is your attitude changing at all? Do you see some of the charges being taken in some of the underlying assumptions supporting current reserves, changing and maybe getting a bit more conservative? Is your attitude changing at all towards that?

Anna Manning

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

John Nadel

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

Anna Manning

Well, we are certainly active. Langhorne is pursuing the larger deals and we are seeing a good pipeline for those larger deals. 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 liquidity.

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 are going to be lumpy. Remember we only - Langhorne in the first quarter, so fees here is not the goal. The goal here is finding the right opportunity and then working hard to win that transaction.

John Nadel

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

Anna Manning

Yes.

John Nadel

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 reasonable way to think about that?

Anna Manning

Well not only is there a reasonable way. We have 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 is very comfortably within our RGA's balance sheet capacity et cetera. Double that deal starting to push I would say anything north of that would indicate that that's more Langhorne deal. A better fit of Langhorne than it is for us.

John Nadel

That's very helpful. Thanks so much Anna.

Operator

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

Andrew Kligerman

Nice quarter. You only stocked on my screen that is up today. so I thought.

Anna Manning

We didn't noticed that Andrew.

Andrew Kligerman

And up significantly. So on that topic did $109 million 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 as a scope of deal activity that you just discussed extensively John? Where do you see share repurchase going?

Todd Larson

Andrew as you know we continually look at the transaction opportunities, our capital generation as well as we also like to keep above for $300 million to $500 million although we will dip into that an appropriate circumstances or if we see attractive transactions. I will comment that and you mentioned that last year and even the year before we were 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. But 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 you know our stock did trade off a little bit in the second half of the year and so we are quite pleased with the shares that we have repurchased.

Andrew Kligerman

Okay. So a lot of moving parts and you can't really give…

Todd Larson

Yes, it's in our formulary.

Andrew Kligerman

Okay. And as I think about your global premium growth, but you backed out some your currency and what happens with EMEA. It seems its 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 Larson

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

Andrew Kligerman

Excellent. Thanks so much.

Operator

[Operator instructions] We will move on to our next question from Dan Bergman from Citi. Please go ahead.

Dan Bergman

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

Todd Larson

Yes so we did see some modestly unstable experience in the both the group and individual DI portfolios. We continue to look closely to see if there is any underlying trend emerging on that type of thing.

We did see some reopen claims and which we don't like to see, but there were some reopen claims. To maybe size it, we would plan to be profitable for the quarter and we had if I’m thinking about it correctly about a pre-tax loss of about $8 million for the overall Australia segment.

And then on the Royal Commission, yes, we continue to monitor what is going on with the Royal Commission that is scheduled to be completed by the end of this year. Right now I would say we don't see any direct impact on claims activity and how clients are adjudicating and managing claims.

Although we are going to keep a very close eye on it and as we get into beginning part of a year we will be able to settle a 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

Go 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 any spillover or some of the onetime project regulatory cost that you saw in the first half of the year and kind of how much if any variable investment that benefit hit the segment. The big picture going forward are we still kind of in that 20 to 25 million range for us for quarterly loss.

Todd Larson

Yes, 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 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 you know about this time of year.

As far as variable investment income, I think I mentioned compared to the run rate for the - normal run rate for the quarter we are about 11 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 will be looking at it closely as we go into next year when we provide no guidance late in January, because as you mentioned Dan there are the moving parts there as some of the things - some of our newer initiatives are in the corporate segment.

Dan Bergman

Got it. Very helpful. Thank you.

Operator

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

Alex Scott

Hey good morning. First question was just on the FASB changes the U.S. 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 the pipeline for opportunities to deploy capital?

Todd Larson

Yes, so we have a targeted improvement. You know its early days, the statement was issued back - I think it was back in August. We certainly have resources and a project underway to look at the adoption of the standard. Given that a large part of our business will be subject to the standard - will 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 will have a better information and again it’s something that we have a quite a bit of resources starting to look at.

Anna Manning

And with respect to potential impact on pipelines, I would say that again, that is 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 are certainly very focused on this.

Alex Scott

Maybe if I could just to a quick follow-up on I guess RGA X any update you can provide on some of the investment you have done there any kind of developments any anticipation to expand that platform would be great.

Anna Manning

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

Alex Scott

Alright. Thanks.

Operator

We will take our next question from Jimmy Bhullar with JP Morgan. Please go ahead.

Jimmy Bhullar

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 it just normal sort of volatility in the business going in the favorable direction as appose to a sustainable number.

Todd Larson

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

Jimmy Bhullar

Okay. And then on share buybacks and there is a question on this before as well. To what extent were you motivated by just low stock price versus maybe you having extra capital coming into the year. I'm just trying to get a sense of like - 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 more severe buyback for this year?

Todd Larson

At the end of the third quarter, we still have about $114 million of our existing authorization in place. No, as I mentioned earlier, we did want to take some shares out given, we have been into the life of previous couple of years in our capital generation has been fairly, fairly good. So the price has a factor, but it’s certainly not the only factor when we are looking at the share repurchases.

Jimmy Bhullar

So would you rule out to additional share buybacks this year or is that still lately?

Todd Larson

Jimmy that's something we will be evaluating as we go forward here.

Jimmy Bhullar

And then on the capital that you put to work on block deals. What are like the typical sort of financial metrics that you are looking at to get some - or the returns that you are looking at to get from that? And how soon would you get to that. Like is there initial buildup or should we assume that the 190 will generate whatever ROE you are targeting next year.

Todd Larson

Again on average. I think we have been pretty consistent that we target overall about 13% return overtime on the deployment of the capital. Now that certainly just the way the deals work and as well as the accounting work, that does ramp up overtime, it can take several quarters to get to the peak return.

Jimmy Bhullar

Okay guys. Thank you.

Operator

[Operator Instructions] We will move on to our next question from Tom Gallagher from Evercore. Please go ahead.

Thomas Gallagher

Good morning. A number of primary companies have been calling out increased reinsurance rates that are being push 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 or section rates moving down or any thoughts on that broader trend?

Anna Manning

Yes. So we are aware that some competitors and they have been public about broad base rate increases and also some situations where they have ended up having to make recapture payments to their clients. This isn’t the strategy that we are pursuing. We monitor the business quite closely. We are 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 enforce management is really consistent with how we think about client relationships. So that is we are 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 are aware of the activity that you described, but we are not following that approach.

Thomas Gallagher

And Anna would you say based on the performance and the experience that you are seeing and obviously competitors must be seeing different performance. When you look or try and triangulate and understand you know 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. You know does it go back to the late 90s to mid-2000s like was your pricing or a market share very different back then.

Anna Manning

Yes, all of those things. So if you take a look at our 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 you know 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. 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.

Thomas Gallagher

Got it. And then just one last question. At least last year there was definitely heavy correlation we saw about the Australian flu season kind of being a good leading indicator of the U.S. 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 it's a decent leading indicator or have you not seen that connection or correlation.

Anna Manning

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

Thomas Gallagher

Okay thanks.

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 Larson

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.