Good day, everyone. Welcome to the Reinsurance Group of America Second Quarter 2020 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.
Thank you. Good morning, and Welcome to RGA's Second Quarter 2020 Conference Call. With me this morning on the call are Anna Manning, RGA's President and Chief Executive Officer, Alain Néemeh, Chief Operating Officer, Leslie Barbi, Chief Investment Officer, Jonathan Porter, Global Chief Risk Officer, and Jeff Hopson, Head of our Investor Relations. We will discuss the second 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. Some of our comments or answers to your questions may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ materially from expected results. Additionally, during the course of this call, information we provide may include non-GAAP financial measures. Please see our earnings release, earnings presentation, quarterly financial supplement, and website for discussion of these terms and reconciliation to GAAP measures. Now I'll turn the call over to Anna for her comments.
Thank you, Todd. Good morning, and welcome to everyone on the call. I hope you are all well and staying healthy. Let me take a moment to express my heartfelt sympathy to everyone who has lost a member of their family or friend, and to all who are suffering from the devastating economic consequences of this pandemic. The health and safety of RGA's employees and their families continues to be a top priority, and I would like to express my ongoing appreciation for their dedication and commitment to ensuring that our global operations continue to run smoothly and productively.
Throughout the quarter, RGA's teams provided uninterrupted and seamless services and support to our clients. We shared our expertise and knowledge through numerous webinars, virtual meetings, and published articles, all of which were well-received and much appreciated. We are proud of these ongoing contributions to thought leadership during this crisis.
Turning to the quarter results, we reported adjusted operating EPS of $1.36 for the quarter and are pleased with these results in the context of this pandemic environment. Specifically reported COVID-19 claims in the quarter totaled $161 million, of which $128 million were in the U.S. Adjusting for cause of death reporting lags and IBNR, total COVID-19 related claim costs in the quarter are estimated to be $300 million globally, of which $240 million were in the U.S. individual mortality business. The remaining $60 million claim costs were mainly in the U.K. and Canada. COVID-19 claims outside of the U.S. individual business were in large part offset by favorable morbidity and non-COVID-19 related mortality experience.
We have revised our mortality model assumptions and scenarios to reflect our own emerging experience, updated information and data on the pandemic, and in consideration of the ongoing uncertainty on the future path of the virus. These updates have resulted in an overall modest decrease in the estimated impact on our results, despite projecting a higher ultimate level of U.S. population deaths, reflecting some of the conservatism we previously highlighted when describing our model. Jonathan Porter, our Global Chief Risk Officer, will provide additional information on the model updates shortly.
Beyond the effects of COVID-19, we were pleased with the performance of our business, as results for most operations were in line or better than expected, and some operations performed particularly well. We have long highlighted the power of the earnings engine that has been built over the last five decades and highlighted the diversification benefits from our global platform.
This quarter again reinforced the resilience and the value of that platform. We completed several capital-motivated financial reinsurance transactions in the quarter. This quarter, we deployed a minimal amount of capital into in-force transactions, in part reflecting increasing competition, especially on U.S. asset-intensive opportunities. We continue to see opportunities in North America, Europe, and Asia. We're taking a prudent, balanced, and disciplined approach to capital deployment during this crisis by carefully weighing opportunities against long-term financial and strategic value. We have been and will continue to be very good long-term stewards of our investors' capital.
Although there remain some challenges and unknowns, RGA entered the pandemic in a position of strength. During the quarter, we took proactive and measured actions to raise capital to further strengthen our balance sheet and build additional buffers. We also reduced risk in our investment portfolio, increased our liquidity, and ended the quarter with excess capital of $1.4 billion. I think there's plenty of evidence in our results this quarter to demonstrate that our underlying earnings power is largely intact, and that we are well-positioned to successfully manage through a period of continuing uncertainty for the virus and the global economy.
We are well-placed to emerge from this pandemic in good shape to capitalize on opportunities and to continue to build on our strong track record of creating long-term value. I remain confident in the long-term value of our business, in the RGA team, and in the strength of the RGA franchise. We are leaders in the life and health reinsurance industry and expect to remain so for many years to come. Thank you for your interest in RGA, and I hope you all remain safe and well. Let me now turn it back over to Todd to go over the detailed financial results.
Thanks, Anna. I will review the financial results, make some comments on investments in RGA's capital and liquidity position. Beginning with consolidated premiums, we reported premium growth of 1% for the quarter, while organic growth on a constant currency basis was approximately 2%, down from the mid to high single digits of prior periods, reflecting in part a temporary slowdown of growth in Asia markets from the lockdown actions, as well as expected reduction in Australia. Turning to the segment results listed on slide six and seven of the earnings presentation.
Starting with the U.S. segment. The U.S. and Latin American traditional business was negatively affected by excess individual mortality claim costs of approximately $240 million. We believe that the excess mortality is related to COVID-19 based on our analysis of emerging data. Specifically, a significant amount of the claims this quarter have been reported with COVID-19 as the cause of death. We assume a similar percentage across the remaining claims where we do not have a known cause of death yet.
The majority of excess claims were concentrated in policies over the age of 70 and policies underwritten more than 15 years ago, which are consistent with the wearing off of underwriting selection and the potential for more comorbidities. We also saw the highest mortality ratios in states that recorded the highest general population COVID-19 deaths, specifically New York and New Jersey. Mortality ratios in those states were significantly elevated when compared to other states.
Our conclusions are also consistent with CDC reports of significant levels of excess deaths in the quarter that indicate that the vast majority of these are believed to be COVID-19 related. [Also] i n our U.S. Traditional segment, both our U.S. Group and Individual Health lines of the business reported results that were modestly better than our expectations.
Our U.S. and Latin America asset-intensive business reported a good result, benefiting from the rebound in the equity markets. U.S. and Latin America's Capital Solutions reported an increase in adjusted operating income resulting from new business growth. Moving to Canada, the Traditional segment had another good quarter. This reflected a moderate amount of COVID-19 claims, partially offset by favorable performance by our Group business. Absent the impact of COVID-19, Canada's Traditional segment would have had another solid quarter. In the Europe, Middle East, and Africa segment, our traditional business performed in line with our expectations overall.
This segment was impacted by a moderate amount of COVID-19 claims in the U.K., but this was offset by favorable morbidity results across the region and favorable mortality in Continental Europe. The EMEA's Financial Solutions business had a very good quarter, reflecting favorable longevity, including some client catch-up reporting. Due to the lags in reporting, we don't believe results reflect any material impact from COVID-19, but we would expect to start seeing some benefit in the second half of the year.
Turning to our Asia Pacific Traditional business. Asia had a solid quarter, benefiting from in-line underwriting experience with most geographies in line and no real outliers. Results in Australia were better than expected at breakeven as the Group business was profitable while Individual Disability was at a loss. Our Asia Pacific Financial Solutions had another very good quarter, benefiting from the growing in-force and new business activity.
The Corporate and Other segment reported pre-tax adjusted operating loss of $11 million, lower than the average run rate, primarily from lower incentive compensation and travel-related expenses. The effective tax rate on pre-tax adjusted operating income was 20.3% for the quarter, below the expected range of 23%-24%, primarily due to the geographic mix of earnings with lower Global Intangible Low-T ax Income, or GILTI, and favorable adjustments from filed tax returns.
Looking at slides eight, nine, and 10 in the earnings presentation. As we expected, we saw the reversal of certain first quarter below-the-line items based upon a rebound in the financial markets and their influence to hedging and embedded derivatives. The non-spread portfolio investment yield ended the quarter at 4.07%, relatively unchanged versus March 31st. Our increased cash levels put some downward pressure on yields, as did a lower new money rate.
Variable investment income improved slightly versus the first quarter, but was still below the average run rate that we would expect. We believe our investment portfolio was defensively positioned coming into the crisis. Overall, the portfolio credit impairments were relatively modest in the quarter. Our portfolio average quality of A rating was maintained. We also took actions to reposition public security where we assessed the risk-reward outlook had become less favorable.
On slide 11, our excess capital position has increased to $1.4 billion, following the capital raise of $500 million of common stock and the net $200 million of senior debt issuance. I'd like to point out that our earnings engine was strong enough to absorb the impact of COVID-19 this quarter on our organic growth and from our dividends.
We had considerable liquidity at the end of the first quarter, and we added to that in the second quarter as cash and cash equivalents increased to $4.3 billion from $2.8 billion at the end of the first quarter. RGA's leverage ratios are at a comfortable level relative to our targets and limits.
Our current liquidity and capital levels, combined with the underlying earnings power of our business, reinforces our confidence that we are in a position to manage through the uncertainty of the current environment and to capitalize on opportunities, support our clients, and continue our strong track record of creating long-term value. Looking forward, we expect to see some level of ongoing COVID-19 impacts that will negatively affect our earnings. Although at this time, it is difficult to accurately predict the timing and the ultimate impact.
We expect that RGA's strong franchise will continue to produce long-term value for our shareholders. However, given the obvious hurdles and uncertainties, it will be difficult to achieve our intermediate targets in the near term. We will provide more information as we gain greater insight into the ultimate impact of the pandemic. I will now turn the call over to Jonathan Porter, our Global Chief Risk Officer, who will provide some thoughts on how we view COVID-19 exposure looking forward.
Thanks, Todd. This morning, I'll provide an update on our assessment of the potential future impact of COVID-19 on our global mortality businesses. As Anna mentioned, our estimated mortality claim cost for each general population death has improved, but this is expected to be partially offset by a higher plausible range of general population death, in particular in the U.S. Let me walk through this in a little more detail.
Recall last quarter, we provided an illustration of the potential impact of COVID-19 on global mortality claims based on a scenario which included 100,000 deaths in the U.S. At that time, our estimate of the extra pre-tax mortality claim costs for this scenario was between $400 million and $500 million.
We have updated our model, for this same number of general population deaths, we are now estimating a range of $200 million-$300 million pre-tax of additional mortality claim costs, a decrease of approximately $200 million. These figures are shown on slide 13 in the presentation material. Several key assumptions that are used to estimate the impact of general population deaths on our insured book of business were updated based on our own emerging claims experience, as well as reviewing multiple other data sources.
The most impactful model change that drove this reduction in estimates is a larger assumed selection factor between insured lives and general population loss. In other words, we expect that the COVID-19 related mortality of individuals who own life insurance will be lower than we had previously assumed. We also made other refinements, including applying country-specific age and gender mortality rates to our insured book.
These impacts were less material, some resulting in increases to future claims and some resulting in reductions. Overall, we believe that these updates better calibrate our models to the experience we're seeing in the general population in the markets in which we operate. As you can appreciate, our model is based on a number of underlying assumptions, which are set based on analysis of external data, our own claims experience, as well as the application of expert judgment, and therefore, estimates are subject to a range of uncertainty.
As provided last quarter and shown again on slide 13 of the material, our mortality exposure is globally diversified with more than half of our amounted risk outside of the U.S. However, given the current global course of the virus and the underlying demographics of our country exposures, we expect the U.S. will continue to be the key driver of COVID-19 mortality claims for RGA in the near term.
The next largest mortality claim costs are expected to be in the U.K. and Canada, although both are expected to be considerably lower than the U.S. Slide 13 also shows estimates for our model for every 10,000 population deaths for these three countries in order to calibrate our claims estimates for future additional COVID-19 general population deaths.
Slide 14 takes these estimates for the U.S., U.K., and Canada, as well as estimates for all other countries where we have mortality exposure and applies them to a scenario for additional general population deaths starting in Q3 2020 and beyond of 200,000 in the U.S., 50,000 in the U.K., 10,000 in Canada, and representative amounts in other geographies. In this scenario, we would estimate future additional pre-tax mortality claim costs between $400 million and $600 million. Obviously, there remains a level of uncertainty regarding the future path of the virus and how it ultimately impacts global population mortality.
Finally, it is worth noting that our modeling continues to assume that all COVID-19 claims are marginal extra claims and not accelerations of claims that otherwise would occur over the short or medium term, as this impact is unknown and difficult to estimate at this time. Additionally, the range of mortality claims provided does not include any future benefit from our longevity business, although we would expect to see a positive impact to earnings as experience emerges. With that, I'll hand it back to Todd.
Thanks, Jonathan. That concludes our prepared remarks. We'd now like to open it up for questions.
Thank you. Ladies and gentlemen, if you'd like to ask a question over the phone today, please press star and then one at this time. If you are using a speakerphone, it might be necessary for you to pick up your handset or depress the mute function so the signal can reach our equipment. In the interest of time, we will try to limit the questions to one question and one follow-up question. We'll take our first question from Humphrey Lee from Dowling & Partners.
Good morning. Thank you for taking our question. Todd, in your kind of prepared remarks, you talked about you didn't really see much of a longevity offset from COVID-19 this quarter, but expect that to emerge in the second half. I think last quarter, you guys talked about 10% as a potential offset is kind of how you think about the potential benefit. Is this still the right kind of number to think about given the revised kind of downward kind of earnings sensitivity?
I sort of missed the last part of your question, Humphrey. Yeah, we didn't see a lot in the first half of the year because there's a reporting lag on that business, because it has to go from the underlying scheme to the insurance company and ultimately to us. As far as the potential offset, we still view that sort of 10% range as far as an offset to the mortality is still a reasonable estimate of how to look at it.
Okay, got it. [And then] Anna, in your remarks, you talked about the kind of the deal pipeline in the U.S. for asset in terms of becoming more kind of competitive against the opportunities in Asia and other countries. Can you just maybe elaborate a little bit more in terms of kind of your outlook for potential capital deployment in the second half of the year?
Sure. Thanks. Good morning, Humphrey. I would say and reemphasize, overall, we see a generally healthy pipeline. I'm going to ask Alain to provide a little bit more color on the pipeline and the competitive environment. Alain?
Sure. Thanks, Anna. I think, Humphrey, in normal times, the deal process is fairly lumpy, and I think that applies here as well. Generally speaking, we are, as Todd mentioned, seeing a very healthy pipeline. We've got different levels of competition at different times. I think generally speaking, the Asian business, as you alluded to, I think is pretty strong. While in the U.S. there's a certain level of competition, I wouldn't diminish the fact that we do have opportunities, and we're looking at them. Similarly in EMEA, I think there's a reasonably healthy pipeline as well. I want to reiterate in these times, I think we're going to see some lumpiness in terms of closing those transactions.
Yeah. Let me provide some additional comments, if I may, Humphrey. We've shown in the past that we navigate periods and pockets of changing competition. We do that by focusing on opportunities that play to our sweet spot, like our capital-efficient solutions. We're very good at those solutions, and we had a very good quarter in executing on those transactions.
As I look at this low interest rate environment, if we're facing this for a protracted period of time, would expect to see greater demand for those solutions, and for general product innovation, as well as continuing demand for innovation in the underwriting process. All of that really plays to our strength, our strength in product development, in underwriting. I would echo Alain's comments. They're somewhat lumpy, but we are remaining very focused, and we are playing to sweet spots where we do have an advantage.
Do you think the current environment will make it more lumpy, just given kind of the current environment, and would present a headwind to kind of your premium growth outlook in the next couple of years?
I'm sorry, I didn't catch the last part of that question. It was about the lumpiness increasing? Do we expect the lumpiness? Is that the premise of your question?
No. Do you think the current environment makes the lumpiness worse? Would that affect a material impact to your kind of premium growth outlook?
The lumpiness we're referring to are in-force transactions. Our premium growth is in large part driven by our underlying organic flow business, because these in-force transactions are in large part fee-based or spread-based transactions, although we do mortality blocks as well. In terms of the organic premium growth, I think it's a reflection of the temporary environment, the lockdowns in most parts of the world. We would expect that as we come out of the crisis to pick back up, potentially even stronger, with some pent-up demand. Does that address the question you were asking?
Yes. Thank you both for that.
Okay.
We'll take our next question from Andrew Kligerman with Credit Suisse.
Morning. I'd like to start on APAC. I noticed in slide 13 that there's no mortality claim cost sensitivity, and I'm wondering if I should take that, such that you anticipate a very low mortality level from COVID-19 in APAC. Part of the question, it looked like Australia was break even, and Todd said on the call that the number was better than expected. Should we think that this group business profitability will revert backward, or we'll start to see losses again, or is this a good runway?
Good morning, Andrew. I'll turn the first question over to Jonathan, your mortality question, and then ask Todd and Alain to address your Australia-specific question. Jonathan, can we start with the mortality question, please?
Yeah. We have provided, as you noted, the calibrated impacts to the U.S., the U.K., and Canada on slide 13. At this point, we're estimating that the three of those countries combined will account for about 90% of our COVID-19 mortality claims costs. That's why we didn't break out all the other countries. I think your assumption that our current projection is assuming that the impact will be relatively modest or small in Asia is correct. Sorry, just to add, that's a function of both our exposure amounts as well as the demographic distribution of our business and the efforts and the relative mortality rates in some of those countries.
I see.
And then on-
Oh, go ahead, Todd.
Yes. Hi, Andrew. This is Todd. Yeah, on Australia, we are very pleased to see the results that we've seen through the first six months, given what we were seeing the last year or two. I think it's too premature to suggest that we've turned the corner. We're continuing to manage the in-force very closely, managing claims very closely.
It's good to see the group performing better, but the individual disability is still reporting some losses, so we still need to continue to keep an eye on the entire block of business, and we'll continue to perform rate increases to the extent we can. In some way, it's good to see the results so far, but I'm hesitant to say that we've turned the corner, and we still need to keep an eye on it going forward, and we still could likely see some volatility.
I see. Just a quick follow-up. In slide 14, you cite an additional 200,000 U.S. general population deaths starting in Q2. I'm wondering, is that just kind of a random scenario, or is that what you think is likely to occur? If so, what are your underlying assumptions?
Yeah, let me take that one. Again, because of the uncertainty that exists around all of the aspects of COVID-19, we don't think of just one scenario. We think of it across a range of outcomes that we're considering. The $400 million-$600 million scenario that was listed here with the underlying assumption, it's a range that we think is plausible or reasonable. No one, including ourselves, can really predict how the pandemic is going to end up. It was meant to provide an illustration of a plausible outcome from our perspective.
Which kind of leads me to wonder, 200 is a very big number moving forward. Any assumptions that you're assuming, like, a big second wave of COVID-19? Is that right?
Again, we look at multiple sort of views on kind of second waves, slow burn, various conditions. Really, from our perspective, the timing of that or the incidence of whether it's a second wave or not, it doesn't make that much difference. It really is ultimately the number of deaths that occur that drives our results. We consider multiple options, but given kind of where we're at now and the potential for what could happen in the future, again, we feel that this is a scenario that's a plausible outcome.
Yeah, thank you.
Andrew, this is Todd. Maybe just to add onto that real quick. It is very difficult, and I don't think anyone should predict the ultimate outcome, given just everything that's going on and the uncertainty. That's why we did provide, so you can sort of take your own view on the ultimate death. We provided, these are estimates at this point, what every 10,000 general population deaths means as far as potential claims activity.
Got it. Thank you.
Hopefully, that's conservative of your original sensitivities.
Great. We'll move on to our next question from Jimmy Bhullar from JPMorgan.
Hi, good morning. My first question is just on how you define excess capital. It's odd when companies talk about excess capital, they're raising equity at the same time. Maybe, and you've mentioned an excess capital number in the past as well, but haven't given a lot of clarity on how you compute the number. That's the first thing.
Relatedly, how do you think about deploying the capital if, let's say, COVID-19 ends up being a manageable risk from a mortality standpoint and credit is sort of in line with your expectations? Clearly, you've got more capital with the raise than would've been absorbed by these things. How do you think about deploying that? When do you start to become more proactive in starting to deploy?
Right. I'll ask Todd to address your first question on how we define excess capital. I'll come back and provide some thoughts on your second question around capital management and also ask Todd if he has any additional comment to provide. Todd, can you start with the definition?
Yeah. What we do, first and foremost, we need to make sure all the various operating companies around the world have adequate capital to meet the local regulatory needs. Also, we look at our own economic capital models that we use internally to look at various levels of capital and also that helps form our view of some of our underlying risk limits. We also pay a lot of attention to the rating agency models because ratings are very important to us because we want to be viewed as a very solid, long-term counterparty to our clients. We're in a long-term business, so it's important for them to view us as a very strong counterparty.
Looking at all those things and maybe tilted a little bit towards the rating agency models, we want to make sure we're always appropriately capitalized to maintain our ratings and keep our operating companies where they need to be from a local perspective.
Okay.
On your second question, I'd start by saying that during this crisis, in this crisis, we continue to work on opportunities where we've been active. I fully expect us to continue to be active. We're balancing that with being prudent so that we do remain well-positioned to weather through. In terms of when does that balance potentially start to shift, I would say we would need more certainty and clarity around the virus, around the economic impact, and then some stability and outlook as well.
As we look out, we don't expect that to happen in the short term. We'll continue along the way we have been since this crisis started. We're continuing to support our clients, actively engaged, haven't seen any change in that activity, if anything, perhaps pick up a bit. We will be very prudent and look for good long-term opportunities and balance that against the continuation in the environment. Todd, is there anything else that you would like to add?
No, I think you covered it, Anna. Thanks.
Maybe I'll just ask one more on the mortality that you've seen primarily in the U.S. business this quarter. Have you looked deeper into the average age and other factors of the claims to sort of discern, clearly all the claims are pulled forward. At some point, every claim comes through in the life business. If you've tried to determine how many of them are maybe pulled forward by a year or two years versus 10, 15 years. Obviously the older the population, the more recent the pull forward is. Any comments on how that affects your view of earnings over the next couple of years, positively or negatively?
I'll start then I'll ask if Jonathan or Todd would like to add. The question about do we think any of the claims are accelerations of the future period claims, very hard to answer that question. Very hard to estimate that at this point. We think it's certainly possible that we have some accelerations of claims given that a very large part, the majority of our extra deaths were concentrated at ages 70+, and in particular 80+. At the end of the day, obviously people can only die once. At this point, it's very difficult to put a figure on it as to how much of that we would have expected to see over the course of the next few periods. Jonathan or Todd?
Yeah, no, I think that's exactly right, Anna. That's again, just another reason why for our extra mortality projection from a go-forward basis, we haven't assumed acceleration consistent with this death.
The only thing I would add is, I view what we're going through now as a temporary period of elevated claim activity. When we get through it, we may be able to see that some of it was an acceleration. That being said, I think the overall earnings power of the organization, probably including the traditional mortality business, will be intact when we get to the other side.
Yeah, I would actually say to the extent that the claims are pulled forward from one or two years, the present value of future earnings is lower, but the earnings next year would actually be higher, not lower, right? Obviously, that assumes that the claims are in fact pulled forward one or two years. If that is true, then all else being equal, your earnings should be better next year than they would have been otherwise. Correct?
Like we said, it's hard to gauge.
Well, that all is-
At this point. Yeah, okay.
Anyway. Thank you.
We'll take our next question from Ryan Krueger, from KBW.
Hi, good morning. I had a question on longevity in the U.K. I know you reiterated the rough assumption of about a 10% offset from longevity to your overall mortality risk. Given that much of your longevity risk is in the U.K. where the deaths have been pretty significant, do you expect, I guess in the near term, a more elevated longevity offset given that dynamic?
Ryan, I'd say difficult to categorically state yes, we think it's likely to be the case given what we've seen in the U.K. As Todd mentioned earlier with the lag, we haven't seen any of that to date, and it'll be more a situation going forward.
Got it. I guess, could you give any detail, maybe just focus on the U.S., what specifically you expect for insured versus population mortality, and then how you think it's coming through for COVID relative to kind of the normal difference between those?
Yeah. For that question, I'm going to turn it over to Jonathan.
Yeah. In our go-forward projections, what we're assuming now across most markets we're in, is that the difference between insured and general population for COVID-specific deaths will be basically the same or equivalent to what we're seeing just for all-cause mortality. That's the assumption that we weren't sure when we determined our model last quarter just because of the lack of data. Now we're more comfortable applying that full differential that we would otherwise not receive for all-cause mortality. Again, based on our own experience as well as the information that we're looking at externally.
Got it. Thank you.
We'll take our next question from Erik Bass from Autonomous Research.
Hi, thank you. Just a follow-up on the longevity experience in EMEA. I think this is something you've seen as a favorable trend for a bit now. I was hoping you could maybe quantify the amount of the benefit or catch-up this quarter, and then talk about what is a typical lag so that the experience you're seeing now, when was it actually incurred, and how long does it take to come through your results?
Yeah. Let me ask Todd to respond to your question.
Okay. Yeah, you're right, Erik. Over time, there's been some lumpiness in the U.K., primarily the U.K. longevity business, given we get catch-up in reporting and that type of thing. I think you need to look at it a little bit more over a longer period of time. We still think the run rate that we've been mentioning for the past couple of quarters at least with total EMEA in that $60 million-$65 million range is still sort of the appropriate run rate to target in on. That really hasn't changed at this point.
It's just we do see from time to time the client catch-up, and fortunately, they're usually to the positive because it's usually getting updated information and truing up the inventory, and those types of things. I don't have the exact quantification of the specific true-up for the quarter. Again, I tie it back to looking at that total EMEA run rate of that $60 million-$65 million.
Got it. No, that's helpful. I guess in general, the trend has been pretty consistently favorable, I think, relative to your pricing assumptions. What do you see as driving that? Does it seem like something that may continue?
Well, I would offer up part of the answer may be that the temporary slowdown in mortality improvements, and how they're impacting, obviously in the other direction, the underlying longevity business there. It could be part of the reason. It's very difficult, Erik, to really provide very detailed-attribution. It's just that when we price long-term business, we have to set long-term assumptions, and they don't necessarily come in lockstep, smooth. There's some volatility, both short-term performance of that business, and as Todd mentioned, and as you alluded to, it's been performing favorably for a good period of time.
Thanks. If we could just switch to Asia. Curious about the near-term organic growth outlook, and also if you could talk about any potential impacts from some of the uncertainty and market disruptions in Hong Kong?
Thank you. Let me ask Alain to address your question. If I may, Alain?
Thanks, Anna. I think as you point out, there has been quite a bit of disruption, particularly in Hong Kong over the last year, even pre-COVID. I think we can expect that the near term might continue to be a little bit below our normal run rate. We'd fully expect over the course of, say, the next year or more, that our new business would ramp back up to expected levels.
Got it. Thank you.
We'll take our next question from Tom Gallagher from Evercore.
Good morning. First question, do you think the pandemic will impact cession rates at all for the primary life insurers? Are you seeing any changes there? Do you expect any impact on the terms and conditions on both new treaties and enforce treaty renewals in the wake of what's happened here, or does that continue to be pretty stable?
I would respond by saying it's too early to really gauge what will happen to cession rates. I could certainly offer up that the value of reinsurance has been highlighted during this pandemic, and so expect that both growth in the underlying insurance market itself, consumers seeing the value of insurance, as well as our clients, the life insurance companies, seeing the value of not just risk transfer, but also other reinsurance solutions. Yes, I think we could see that. I would expect to see that, but it's too early to say that we, certainly on the cession side, that we're seeing it on the cession side. Perhaps I'll also ask Alain, any further thoughts that you would like to add?
Yeah, I think you're right, Anna. As you mentioned, there's really been no impact on Cession Rates so far, and at this point, no reason to believe that there'd be any downward pressure on that. In terms of terms and conditions, again, probably too early to tell, but at the end of the day, I think we are reinsuring a life, whether that life dies through the course of the flu or a pandemic, I wouldn't see us, and certainly insurance companies on the front end, excluding that. I wouldn't expect any significant changes in terms and conditions.
Okay, my follow-up is, I guess, is kind of a follow-up to what Jimmy asked before about the way you're thinking about capital adequacy risk in force. Does this cause you to reconsider how you're viewing just overall enterprise risk relative to the capital you hold given the equity raise here? I guess just a related question, would you consider materially growing some offsetting risks to mortality, whether that's adding more longevity or morbidity risks to the book as a way to better balance it out to call it less than the pandemic net exposure that you would have? How are you thinking about that overall, and have you even rethought the strategy just given that you ended up raising equity?
All right. Let me take parts of those questions. Let me address the raised equity question, and then I'll ask Jonathan to speak to your capital questions. Specifically to why we raised equity. I'll start by saying, when we looked out at the crisis, we couldn't see a quick end. We felt this pandemic would likely continue until there were therapies or treatments or vaccines, and the timing of those vaccines and therapies was highly uncertain.
In addition to the virus, the picture was developing on the impacts to the global economy on just how much damage was being done and on the uncertainty around how and when and over how long a period of time we would see a recovery. Facing that, we felt it was prudent to increase our capital buffers because we're in a long-term business, and strength and stability are important for protecting the valuable franchise we've spoken about this morning and in making sure that we're well-positioned to pursue these attractive opportunities, growth long-term value opportunities.As we look out today, not a lot has resolved.
We continue to believe that increasing our buffers was the right decision, was a prudent choice, and it's consistent with how we've managed shareholder capital over the long term. Look, we're not at the end of this, and I'd end by saying, I think it's premature to draw any conclusions at this point. Maybe with that, I'll ask Jonathan to address the rest of your question.
Yeah, Anna, thanks. From a capital perspective, I'm still quite comfortable with the level of required capital that we have set up from our internal economic basis to handle or account for pandemic exposure. No concerns there. Diversification, I think you asking about diversification strategy, I guess I would say that over the last several decades, I think we have been employing a strategy of diversification and looking at things like longevity, morbidity, and different geographies, as you pointed out. I think that has served us well in this environment. I guess the experience we're having now, I'm sure will factor into our thinking on a go-forward basis, too.
Yeah. Maybe I can add just one other thought, which is, from time to time, we have looked at buying some type of pandemic protection, be that a cat bond or some other instrument. What we always found that was to get a meaningful amount of protection, given just the scale of our mortality business, it was hard to find capacity, and then the costs were too expensive for the protection provided. We didn't and continue not to see good benefit cost options. The way we look at it, and as Jonathan highlighted is, it's by using diversification, it's by managing risk appetite. That's the risk framework through which we look at our business, and we will continue to do so going forward.
Okay, thanks.
Our next question comes from Dan Bergman from Citi.
Thanks. Good morning. To start, I guess excluding the capital raises, it looks like excess capital was roughly flat quarter-over-quarter. Looking forward, if buybacks and block reinsurance deals remain minimal and premium growth remains around the current level, is the second quarter earnings a decent proxy for the level of earnings you'll need to generate to keep excess capital flat going forward? Are there other adjustments or factors we need to be thinking about?
Yep. Todd, can I ask you to address the question, please?
Yeah, Dan, I don't think that's probably not a bad way to look at it. I think if you look out at what our earnings power can be ex-COVID-19 for the remainder of the year, then we went through what our estimate is over time for COVID-19, you can estimate how much of that would be in the second half of the year. I think we'd have the earnings to fund our organic growth as well as fund the dividend, then the sort of unknown would be how much capital we potentially deploy into any in-force transactions that look attractive.
Got it. That's really helpful. Maybe just a quick one on corporate. Should we expect the loss there to remain favorable to prior guidance near term with travel and maybe some other expenses remaining depressed? Is that prior kind of quarterly loss guidance still a reasonable expectation?
For now, I would say the $25 million loss on average per quarter is still reasonable. We did have a little bit additional reduction in the loss in the second quarter here. I think we'll be maybe hopefully coming a little bit under that as we go forward. I wouldn't provide sort of an updated average loss at this point. Some of the items like travel should maintain a lower level, obviously through the rest of the year.
Got it. Thanks so much for taking the questions.
Our next question comes from Konstan Agrogiannis from Legal & General.
Good morning. I guess my question goes regarding for capital deployment, [so I'm going to sense a bit. Regarding the excess capital and ratings, I think you mentioned that you would have expected the COVID-19 losses ave been absorbed by the current earnings ability. While the previous capital buffer around $700 million from what I was within from the editing repots, we have maintained the ratings. Is it because S&P has still a stable outlook? Therefore, I'm going back to capital depoyment, and I'm kind of asking whether do you expect to have a much worse Q3, Q4 claims experience if you also consider reporting, the lag reporting?] .
I think that the lag reporting comment was in respect of our longevity business, which we expect should be net positive to earnings. We have, on our mortality business, we have all of the incurred claims in the quarter and do not have any lag that would then be felt in the following quarter, if I'm understanding the question. Todd, am I thinking about that question correctly?
I think that's right. Based on your answer, I agree, or your comments, I agree with. I did not completely hear all the question. It was breaking out for me.
Yeah. Konstan, does that address your question?
Yes, it does. It was mostly about future capital deployment. I'm kind of lag on reporting, but yeah, it does address it. Thank you.
Thank you.
We'll take our next question from Brian Meredith from UBS.
Hey, guys. This is Michael Ward on for Brian. I guess kind of expanding on that natural hedge phenomenon that we've spoken about in the past. You mentioned, when we've got elevated mortality like this, of course, it comes through in the period that it occurs. Maybe there's a little lag, but just kind of wondering how long does it usually take for that benefit to flow through in the longevity piece? Does it take quarters or years? Just kind of curious how we should frame that, thinking about that benefit, that offset.
Yeah. It's closer to the first, which is quarters. It is not lagged for years. Obviously, it depends. We have a number of transactions. That means a number of clients, and clients have different operations. Then the underlying schemes, the pension schemes themselves also have underlying operational processes. On average, in general, I think we're looking at it from a few quarters perspective, not years perspective, necessarily. Todd, correct me or John.
No, I agree with your comment.
Yes.
That's helpful. I'm just thinking about, so you said you didn't have any of that longevity benefit this quarter, but if we back out the $300 million of excess COVID-19 claims, I think that would translate into an EPS for the quarter over $5 per share. Maybe I'm wrong on that, but I'm just curious if you could help us understand or quantify the other favorability that contributed this quarter.
Yeah. There were other things going in other directions. I'm going to ask Todd to give you just some high-level overview of some of the other items to help frame that calculation you just did.
Yeah, in addition to just looking at the, say, the elevated mortality impacts that you could add back, you also need to look at, there were some expense savings in the quarter that would need to be added back and adjusted, related to travel, as well as a significant component of the expense savings related to compensation, and within the compensation related to sort of variable compensation and longer-term incentive compensation type adjustments that we made, given the underlying experience that we're going to see this year is going to impact some of those longer-term programs, we need to do adjust with that. You'd need to maybe reduce the mortality savings by some additional expenses. I'd put the savings expenses, a rough number, but maybe it's around $0.50 a share.
I would add one other thought, and that is $300 is the global estimated cost, $240 in the U.S. individual. The other $60 outside of that operation, recall that it was offset in large part due to favorable performance in the morbidity business and other non-mortality. I think that adjusting back up for that $60 is somewhat aggressive because it would suggest a permanent contribution from and continuing contribution from that over performance. Although we'd love for that to be the case, that could be somewhat aggressive.
Thanks very much.
[And] unfortunately, ladies and gentlemen, that is all the time we have for questions today. I would like to turn the call back over to Mr. Todd Larson for any concluding remarks.
Okay, thank you. Well, everyone, thank you for joining us on our second quarter earnings call today. As always, we appreciate the continued support and look forward to the continued dialogue as we go forward. Thank you very much.
Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.