John McCallion

Thank you, Michel, and good morning. I'll start with the 3Q '24 supplemental slides, which provide highlights of our financial performance, including details of our annual global actuarial assumption review. In addition, I'll provide updates on our value of new business metrics and our liquidity and capital position.
Starting on page 3, we provide a comparison of net income to adjusted earnings in the third quarter. Net income was $1.3 billion, $100 million lower than adjusted earnings. We had net derivative gains primarily due to the strengthening of the yen versus the US dollar and the decline in interest rates in the third quarter. That said, derivative gains were partially offset by market risk benefit, or MRB, remeasurement losses due to lower interest rates.
Net investment losses were modest, reflecting normal trading activity and a continuation of a stable credit environment. Overall, the investment portfolio remains high quality and resilient and our hedging program performed as expected.
The table on page 4 provides highlights of our annual actuarial assumption review and other insurance adjustments with the breakdown of the adjusted earnings and net income impact by segment. Overall, the impact to adjusted earnings and net income was modest. In group benefits, we had an unfavorable impact due to a liability refinement related to an annuity payout feature on a small subset of our Group Life portfolio. There is no ongoing impact due to this refinement.
In retirement and income solutions, or RIS, while we have maintained our long-term mortality trend assumption consistent with pre-COVID. This reflects the impact of higher mortality over the last few years, which resulted in a positive impact to adjusted earnings. And in Asia, the net unfavorable impact was primarily due to three factors: unfavorable changes to lapsed assumptions across life and accident health products in Japan, lower expected fund returns for variable life products in Korea, and these were partially offset by a positive impact from improved morbidity for accident and health products in Japan and Korea.
On page 5, you can see the third-quarter year-over-year comparison of adjusted earnings by segment, excluding notable items. Adjusted earnings were $1.4 billion, down 8% and 6% on a constant currency basis primarily due to lower recurring interest margins, partially offset by solid volume growth year over year. Adjusted earnings per share were $1.93, down 1% on a reported basis but up 1% on a constant currency basis.
Moving to the businesses. Group benefits adjusted earnings were $431 million, down 11% year over year, primarily due to less favorable nonmedical health underwriting margins versus a strong comparison in Q3 of '23. The Group Life mortality ratio was 85.6% and 82.4% when excluding the notable items discussed earlier. This was below our annual target of 84% to 89%. Our mortality results remain seasonally strong, albeit following record-low life claims in 2Q of '24. Year to date, our Group Life mortality ratio remained at the low end of our annual target range, although we would expect the ratio to be toward the middle of the range in the fourth quarter.
Regarding nonmedical health, the interest-adjusted benefit ratio was 72.4% in the quarter, within our annual target range of 69% to 70% but higher than the prior year quarter of 69% or 70.4% excluding a favorable notable item related to disability in 3Q of '23.
Turning to the top line. Group benefits adjusted PFOs were up 5% year-over-year and at the midpoint of our 2024 target growth range of 4% to 6%. Group benefits year-to-date sales were up 9% driven by strong growth in national accounts. RIS adjusted earnings were $368 million, down 10% versus the prior year. Lower recurring interest margins were partially offset by strong volume growth and favorable underwriting margins.
RIS total investment spreads were 106 basis points, down 15 basis points sequentially mainly due to the continued expiration of interest rate caps and lower variable investment income. As we highlighted in the Q2 earnings call, the continued roll-off of the interest rate caps drove the majority of the sequential decline. Given the vast majority of interest caps have expired and based on the current forward interest rate curve, we expect fourth-quarter spreads, excluding variable investment income, to now stabilize and be flat to up 1 to 2 basis points.
RIS adjusted PFOs, excluding pension risk transfers, were up 3% year over year primarily driven by strong sales in UK longevity reinsurance. With regards to PRT, we continue to see an active market. We had premiums of approximately $500 million in the third quarter, and we have already seen a strong start to Q4 with over $1.5 billion in PRT wins in the past month alone.
Moving to Asia. Adjusted earnings were $347 million, down 6% and 5% on a constant currency basis primarily due to market-related items in the quarter, partially offset by favorable underwriting margins. For Asia's growth metrics, general account assets under management on an amortized cost basis were up 6% year over year on a constant currency basis. Asia sales were down 1% on a constant currency basis.
Lower Japan sales were mostly offset by other Asian markets, which were up 10%, most notably due to strong growth in India and China. In Japan, sales were down 7% year over year primarily due to the impact of yen volatility on foreign currency products. However, we continue to see a favorable outlook given higher interest rates and positive macro changes in Japan. For example, our refreshed yen-denominated variable life and cancer products introduced earlier this year have performed well.
Latin America adjusted earnings were $217 million, up 9% and 21% on a constant currency basis primarily driven by strong Chilean encaje returns in the quarter and volume growth in our key markets. Latin America's top line also continues to perform well as adjusted PFOs were up 1% or 11% on a constant currency basis driven by strong sales and solid persistency across the region.
Turning to EMEA. Adjusted earnings were $75 million, up 7% on a reported basis and 9% on a constant currency basis, primarily driven by strong volume growth year over year. EMEA adjusted PFOs were up 11% and 18% on a constant currency basis driven by growth across the region, and sales were up 32% on a constant currency basis primarily from Turkey and Egypt.
MetLife Holdings adjusted earnings were $170 million, down 17% versus the prior-year quarter. The primary driver was the foregone earnings due to the reinsurance transaction that closed in November of 2023. Corporate and other adjusted loss was $249 million versus an adjusted loss of $262 million in the prior year. The company's effective tax rate on adjusted earnings in the quarter was approximately 24% and within our 2024 guidance range of 24% to 26%.
On page 6, this chart reflects our pretax investment income for the prior five quarters, including $162 million in Q3 of '24. This was down $17 million versus Q3 of '23. The private equity portfolio, which had over $14 billion in VII assets as of September 30, had a positive 0.6% return in the quarter. This compared to a 1.4% return in Q3 of '23. While PE returns were below recent trends, our real-estate-related and other funds of roughly $4.5 billion continued to improve with a 1.1% return in the quarter. As a reminder, PE, real-estate-related and other funds are reported on a one-quarter lag and accounted for on a mark-to-market basis.
On page 7, we provide VII post-tax by segment for the last four quarters and the third quarter of '24. As you can see in the chart, Asia and MetLife Holdings continue to hold the largest proportion of VII assets given their long-dated liability profile.
Now turning to page 8. The chart on the left of the page illustrates the split of our adjusted net investment income between recurring and VII for the last three years, including third quarter of 2023 and '24. Adjusted net investment income in Q3 of '24 was essentially flat versus the prior year. While recurring investment income has benefited from asset growth and higher interest rates, it has been offset by the roll-off of interest rate caps.
Turning your attention to the right side of the page. This shows our new money rate versus roll-off yield since the third quarter of '21. Over the last 10 quarters, new money yields have outpaced roll-off yields, consistent with higher interest rates. In Q3 of '24, our global new money rate achieved a yield of 6%, 22 basis points higher than the roll-off rate. The narrowing of the spread between new money rates and roll-off yields in 3Q was primarily due to a roughly 70-basis-point decline in US interest rates and elevated pay downs in the quarter of recently purchased higher-yield securities. That said, the proceeds from these pay downs in 3Q have been reinvested in high relative value public and private assets with similar yields.
I would also note that the new money rate-related purchases in 3Q of roughly $14 billion, more than twice that of the invested assets rolling off. So while the difference between our new money rates and roll-off yields shown here is as an indicative metric for future investment margin impact, it's only directional in nature and not a perfect depiction of spread impacts. At these levels, we continue to see positive impact of higher yields on our in-force and new business growth.
Now, moving to expenses on page 9. This chart shows a comparison of our direct expense ratio for the full year 2023 of 12.2% and the first three quarters to '24 all below 12%, including 11.7% in Q3 of '24. As we have highlighted previously, we believe our full-year direct expense ratio is the best way to measure performance due to fluctuations in quarterly results. Our Q3 direct expense ratio benefited from solid top-line growth and ongoing expense discipline.
Looking ahead, we would expect our direct expense ratio to be higher in the fourth quarter, consistent with the seasonal nature of our business. That said, our performance year-to-date positions us to beat our full-year 2024 direct expense ratio target of 12.3%, demonstrating our consistent execution and a sustained efficiency mindset.
Now, let's turn to page 10. This chart reflects new business value metrics for MetLife's major segments for the past five years, including an update for 2023. MetLife invested $3.6 billion of capital in 2023 to support new business. This was deployed at an average unlevered IRR of approximately 19% with a payback period of five years, generating roughly $2.6 billion in value.
I will now discuss our cash and capital position on page 11. Cash and liquid assets at the holding companies were $4.5 billion at September 30, which is above our target cash buffer of $3 billion to $4 billion. Cash at the holding companies reflects the net effects of subsidiary dividends, payment of our common stock dividend, and share repurchases of roughly $800 million in the third quarter as well as holding company expenses and other cash flows. In addition, we have repurchased shares totaling approximately $130 million in October.
For our US companies, preliminary third-quarter year-to-date 2024 statutory operating earnings were approximately $2.8 billion, essentially flat year over year, while net income was approximately $2 billion. We estimate that our total US statutory adjusted capital was approximately $17.6 billion as of September 30, 2024, down 2% from June 30, 2024, primarily due to dividends paid and derivative losses, partially offset by operating earnings. Finally, we expect the Japan solvency margin ratio to be approximately 745% as of September 30, which will be based on statutory statements that will be filed in the next few weeks.
Before I wrap up, I would just like to highlight that we have an updated commercial mortgage loan slide as of September 30 in the appendix. Overall, the CML portfolio continues to perform as expected with attractive loan-to-value and debt service coverage ratios as well as the expectation of modest losses.
In summary, while adjusted earnings were below our expectations primarily due to lower VII, the underlying strength of our business fundamentals was evident with strong top-line growth, disciplined underwriting, and prudent expense management. In addition, our strong value of new business metrics demonstrate our disciplined approach to deploying capital to its highest and best use, consistent with our all-weather strategy.
MetLife remains in a position of strength given our balance sheet, free cash flow generation, and diversification of our market-leading businesses, and we are committed to deploying capital to achieve responsible growth and building sustainable value for our customers and our shareholders.
Finally, let me close by saying that we look forward to seeing many of you on December 12 at our Investor Day, which will focus on the introduction of our New Frontier strategy. As we have in the past several years, we will be offering our near-term outlook in early February as part of our fourth-quarter 2024 earnings call.
And with that, I'll turn the call back to the operator for your questions.

Question and Answer Session

Operator

(Operator Instructions) Suneet Kamath, Jefferies.

Suneet Kamath

Great, thank you. Good morning. I wanted to start with group benefits, if I could. I know your adjusted loss ratios are in your guide, but maybe a little bit higher than they've been tracking recently. So can you just talk a little bit about how you're thinking about pricing in that business, particularly in dental, where I think you've seen some pressure? And maybe some comments on the competitive environment as well. Thanks.

Ramy Tadros

Hey. Good morning, Suneet. Maybe I'll start with the competitive environment. I would reiterate we're not really seeing any change in the competitive environment in group. The market has been competitive, remains competitive. But having said that, we always did note that the pricing perspective is not an irrational market, and the short-term nature of the products that we sell, in particular, also dental, means that any aggressive pricing will shop fairly quickly in earnings, which acts as a kind of a natural check on any irrational pricing.
So the headline for you here, yeah, it's competitive, not irrational. And we do see kind of a competitive environment. That also extends beyond price as we've also talked about before in terms of capabilities, digital experiences, breadth of product [and what have you].
From a ratios perspective, I'll start with life. We're particularly pleased with the life ratio this quarter. It is still below our lower end of our guidance range once you kind of take that notable piece out. And we're benefiting from favorable incidents in the population, and you continue to see that in the CDC population data for the working age population. So if you look at that life ratio year to date, we're at 83.9%. And even if you were to factor in a seasonally higher Q4 on the life side, we would still be close to the bottom end of the range for life.
And then finally, moving on to the nonmedical health ratio. We're also within the range, as you pointed. We did have a number of smaller items in the nonmedical health ratio, which were unfavorable to the ratio. Those were worth about a point. So if you take that out, it would bring us right back in the middle of that range.
Then with respect to dental in particular, I did talk about the competitive environment. And we also did talk in the past about a market that's trending back to prepandemic seasonality and utilization levels. And we have seen these dynamics play out, and we have been taking actions in terms of pricing. So think of that as really part and parcel of how we manage our dental block through cycles.
The critical point I would make here is going forward, it's really about ability to reprice and maintain persistency. We can reprice about 80% of that business in any given year. So while this quarter was higher than our seasonal expectations, our pricing for 1/1 reflects these dynamics. And we feel really good about returning back to our target margins for the block in 2025.

Suneet Kamath

Got it. Okay. That's helpful. And then, I guess, for either Michel or John, on the VNB slide, can you just talk a little bit about what's driving the improvement in the IRR and the reduction in the payback period? And have you sort of back-tested these IRRs? Because I'm assuming they're sort of pricing IRRs. And so when you look at how these blocks have actually developed, are they pretty close to your pricing assumptions? Or can you just give us some color on that? Thanks.

Michel Khalaf

Sure. Thanks, Suneet. I'll start, and then I'll let John add some color as well. So really pleased with the journey we've been on here in terms of -- one of our main pillars for Next Horizon was the focus pillar, which is allocating capital to its highest and best use. And I think that's reflected in how we allocate capital in support of organic growth, of new business growth.
And if you think about sort of the trajectory we've been on here, think about group benefits, LatAm, two of our higher-return businesses, continuing to show really strong growth there. So that's certainly a contributing factor. We're not getting 19%, I would say, across all of our businesses, but the fact that we have businesses with higher returns growing faster than some of the other businesses, that's certainly contributing to the VNB picture you see on our slide.

John McCallion

Yeah. And Suneet, I think your -- it's a good question, the point around just back testing because as you said, this is -- these are IRRs on new business that we've priced based on our best estimate assumptions. And I think -- I have been thinking about that as well. And I think there's a couple of things.
Certainly, the environment has been favorable here, right? I mean, in the case of -- if you just think about -- we've been in benign credit environment. Underwriting has generally been in line across our businesses, and interest rates have been favorable.
So all of those -- so I think the answer is yes, it's hard to be really precise, give or take, on all of those things. But we think about -- we've asked the same question ourselves because, obviously, we're seeing the positive momentum here. And I think, just thinking a little more about the positive momentum, like Michel said, mix of business is certainly a driver there in terms of our new business.
Two, I think the tool itself as a management tool has causes everyone to continue to refine things in terms of pricing, capital optimization, how you might use reinsurance. We did get some favorable regulatory changes. Like in Korea, for example, they've moved to an economic framework recently, typically favors up because we tend to follow an economic framework. So that has ultimately given us a lot more excess capital there that will over time be redistributed up into the holding company.
And then I think the third thing is there's been a trend of unit cost improvement there. So I think all of those factors give rise to why you see this kind of migration occurring. And I think probably the biggest one is what Michel said, which is mix of business, you have high growth in -- certainly in some of our businesses that have had high IRRs from very low capital-intensive businesses like group and Latin America. So hopefully, it helps.

Suneet Kamath

It does. If I could just throw in one quick follow-up. These IRRs, I mean, I'm assuming they would give us a directional indication of where your ROE is headed given that they're unlevered returns?

Michel Khalaf

Yeah. I mean, I think that should give a good indication in terms of direction of traffic here, especially if you consider that besides what we just mentioned, the fact that MetLife Holdings, which is a low-ROE business, is running off. So all of these factors combined, I think, would point to a ROE trending upwards.

Suneet Kamath

Got it. Makes sense. Thanks.

Operator

Jimmy Bhullar, JPMorgan.

Jimmy Bhullar

Good morning. I had a couple of questions. One was just on Japan sales. Should we assume that with the yen-dollar exchange rate moving around that Japan sales, especially dollar-denominated products, will stay weak in the near term? Or are there other sort of products that you're thinking about that should help mitigate the impact?
And then secondly, on the portfolio, most of the metrics on your commercial real estate portfolio seems fairly stable with where they've been. But what are you seeing overall in the market? And do you think office and non-office, are they close to bottoming? And then there's been renewed concerns, I think, recently with the single asset, single borrower-type loans back in CMBS. And if you could just give some numbers on your exposure to those. Thank you.

Lyndon Oliver

Great. Jimmy, it's Lyndon here. Let me take the Japan question. So let's start with Japan sales, and I'll give you some color on overall Asia. Look, Japan is an attractive market. Look, we're seeing increasing interest rates as well as positive macro trends there. And what we are seeing is an overall environment for FX products that has become more competitive.
If you look at Japan sales, they were lower year-over-year in single premium FX products. Now, a few reasons. We face a tough comparative against last year. Sales in '23 for the full year were up 14% year over year. And then, as you said, while the yen has strengthened in the quarter, we do see continued volatility of FX markets, and that has impacted the sales of foreign currency products. So essentially, what we're seeing are more customers staying on the sideline during these periods of FX volatility.
Japan sales for the third quarter sequentially were in line with where they were for the second quarter. Now, we do have a diversified portfolio. We have both US dollar as well as yen products in Japan, and we continue to evolve this product portfolio to maintain competitiveness. So we've introduced several new products. We launched a refreshed yen-denominated variable life product. We've launched a cancer product earlier this year. Both products have performed very well. We've also launched a refreshed A&H medical product this month, and we're planning to launch a new US dollar life product early next year.
If we look at the rest of Asia, what we're seeing, our sales have gone up 9% year over year, and that's driven primarily from China and India. Solid performance in China, especially as we look across both our channels, bancassurance as well as agency. And if you look in India, we've seen sales increase sharply there with strong growth across all our channels.
As far as an outlook goes, look, year-to-date sales have been in line with the prior year, and we expect full-year sales for Asia to be close to flat year over year.

Jimmy Bhullar

Thanks.

John McCallion

Thanks. Jimmy, I'll take your commercial mortgage comment or question. As you pointed out, I think despite the recent pressure, we've kind of commented on a few factors, right? There's been continued -- economic growth has been healthy. That has been good news for fundamentals of real estate. There's some modest trend towards in-office or even office has some kind of backdrop momentum here.
And overall, I think as you point out, we feel -- outside of office, we probably feel like we've kind of hit the trough, and we've probably seen a positive outlook. There's healthy fundamentals overall now for the economy. You have like some at least expectation of some declining interest rates. Even steepening of the curve, I think, would be a positive here.
You're starting to see increasing transaction activity. Even us in this quarter, we probably -- I think we had five sales of real estate properties for a gain, about $120 million, $150 million of gain in the quarter. So again, we're just starting to see more liquidity come back into the market. So we think -- overall, there is a positive backdrop that's starting to emerge. I don't think we're out of it. We're not going to see kind of a V-shape recovery per se, but it certainly is setting up for a more positive 2025 environment.
I think you asked about single borrower. I don't have the exact number on CMBS, but it's relatively small. I think I'd just give you a few statistics. We have about $10 billion of CMBS. And of that, over 80% or about 80% of that is rated AAA or AA. But the single borrower exposure is relatively small. I just don't have that at my fingertips.

Jimmy Bhullar

Thank you.

Operator

Tom Gallagher, Evercore.

Tom Gallagher

Thanks. First, just a follow-up on group benefits. The -- Ramy, I think you mentioned the -- there were certain nonmedical health products that were elevated in the quarter. What were those -- outside of dental, can you -- what risks are those? Are those disability or something else? And is there a reason you would expect those to recover quickly or is there going to be some tail to those where you think those might remain elevated?
And then also just on dental, how do you see that playing out? Is there -- does it take a year in terms of the way the repricing works versus the margin or is it quicker than that?

Ramy Tadros

Hey, Tom. Thank you for the question. So the one-timers were about 1 point in aggregate. So think of them as -- the small items were about 1 point in aggregate. So think of that as about $20 million post tax. And I would largely characterize them as one-timers. So we've got some of -- small item on the reinsurance true-up, another item on timing of rate approvals. So think of them as a collection of items that just all went against us in the quarter.
Within the -- disability continues to perform very well for us, and we continue to see incidents in line with expectations. We continue to see strong recoveries in that line of business. So that's a bit of a -- kind of some more color on those smaller items. But in aggregate, I would say, largely think of them as onetime in nature.
With dental, we have been putting rate increases in the books since the beginning of the year. And as and when business comes up for renewal, these rate increases kind of will go into place. While we don't have complete visibility into 1/1, the visibility is pretty good at this point. And from what we're seeing so far, we are going to be back to our margin for the full year '25. So this is not a multiyear issue. We're kind of towards the end of that cycle, and 1/1 would have us back to our target margin.

Tom Gallagher

Got you, thanks. And then just a question on risk transfer. A peer of yours recently said they looked into long-term care risk transfer, decided the pricing was too adverse, and they're moving on. They're not going to pursue anything beyond that. Curious if you've looked into that market and if you have, your view of it, do you share that view that the pricing is too onerous or is that something you might want to pursue?

Ramy Tadros

Hey, Tom. It's Ramy again here. While I can't comment on the specific of any peer. We continue to see activity in that market, I would say, increased activity, in particular over the last 12 months. And I would say the bid-ask spreads are somewhat narrowing, which is, I think, encouraging as we think about our book and some of the bid-ask spreads that are out there.
But as we've always said, our book is well capitalized, it's well managed. It continues to perform in line with expectations. So we continue to assess risk transfer options. Clearly, any deal needs to create long-term shareholder value. So price matters, structure matters here. But in general, I would say, active discussions and somewhat narrowing of bid-ask spreads there in terms of what we see.

Tom Gallagher

Got you. Thanks for that.

Operator

Ryan Krueger, KBW.

Ryan Krueger

Thanks. Good morning. I had a question on RIS spreads. John, does your comment on the spreads stabilizing in the fourth quarter also translate into stable spreads in '25 as well based on the forward curve?

John McCallion

Hey, Ryan, good morning. Yeah, and just as -- just to kind of rehash what I said, right, we had we had a little bit more of a decline this quarter relative to what we had called out in the second quarter of 8 to 10 basis points on the core spreads, and it came in around 11. So I think a good reminder, which I didn't say in my opening remarks, is that in the second quarter, we said 8 to 10 would occur as well, and we came in under that. So a little bit of each of those quarters are a function of just what rates did in the quarter. And this quarter, we had we had some lower rates during the quarter. Although as everyone has seen, rates have ticked up, which gives us a little bit of the -- kind of optimism to being flat to up a few basis points come fourth quarter.
We'll give more color in the outlook call in February. I think that maybe the -- but I will say that we do feel like we've gotten to a more stable spread, maybe is the way I'd put it, but curve matters. So that will be an aspect of what we do in our outlook. So hesitant to kind of call it now. I think we'll wait and see where the curve is, and also the sensitivities can change and things like that, very dependent upon kind of the outlook of the curve. But all in all, we are seeing more stability now. And so I think that's a fair assumption for now.

Ryan Krueger

Thanks. And then do you have any early insight into fourth-quarter variable investment income at this point?

John McCallion

I wish I could say yes, but probably, I don't know if we have really good insights. I mean, look, at the end of the day, we probably have a view. And I think the reality is that this portfolio in the sector of PE, they continue to adjust to higher rates and more volatile markets and a constrained set of exit options. That said, it was still positive returns this quarter. We also saw a positive rebound in the real estate and related funds there in the quarter, again, maybe referencing back to some of the comments I made earlier around kind of what we're seeing in real estate.
And I think the other thing that I did call out, I think it was at your conference possibly, is that we had another $600 million of distributions occur. So this is still giving a strong cash flow. I think performance has been good on a relative scale, I think, top -- kind of top half quartile -- top-half performance, maybe second-quartile performance.
In the quarter, when we went in and dug deep, we saw that there were probably a few one-off situations in certain funds in the quarter, where some of the funds had to mark a particular asset as opposed to broad marks across. We think that those are more one-off factors. So if we were to normalize for them and use that as our proxy for the fourth quarter, you should think maybe total VII would be north of where we are today, maybe doesn't get us back to 2Q levels. So maybe you take the midpoint of those two as a good estimate for fourth quarter at this juncture.

Ryan Krueger

Great. Thank you.

Operator

Alex Scott, Barclays.

Alex Scott

Hi, good morning. I just wanted to come back to some of the comments on RIS and maybe even more broadly across the firm. Could you talk about your sensitivity to interest rates? Maybe help us think through what kind of floating rate allocation you have and the net of floating rate liabilities and so forth. And would be interested in RIS specifically. The shape of the yield curve changing the way it has, is that a net positive, negative? I just want to get a better feel for rate exposure.

John McCallion

Yeah. Good morning, Alex. It's John, and welcome back. Yeah, just as a framing, generally, for our portfolio is -- a steeper curve is better. So we -- higher rates are better, steeper curve is better as well. So I think that helps with maybe the direction of travel.
In terms of like our floating rate assets to liabilities, we're pretty well matched. Sometimes we have a little bit of floating rate assets in corporate and other, so that can be one place where you might see. But ultimately, a lower short end of the curve is better for us, and that's just how we typically manage our collective portfolio.
So I think the outlook slides we provided back in February of this year in terms of just parallel shifts in the curve are probably still pretty good proxies for the impact to our firm. But in terms of shape of the curve, I can probably just give you directional commentary at this juncture.

Alex Scott

Got it. That's helpful. Thank you. And as a follow-up, as we think through the strategies that's on the come here in December and thinking through the comments that it should provide further enhancement to returns, will that come more through revenue growth and growing some of the businesses with higher returns? Or are there further levers that you can pull to take down that expense ratio and drive efficiency across the organization?

Michel Khalaf

Yeah. Hi, Alex. Yeah, I would say it's a combination of continuing to grow high-return businesses, continue with the same discipline that we've -- that's now sort of -- really sort of a muscle that's very strong in the organization, I would say, in terms of how we price, how we bring product to market. And then to the point that John made earlier, our unit cost also has been coming down. So that's another contributing factor there. So it's both of those things.

Alex Scott

Thank you.

Operator

Wilma Burdis, Raymond James.

Wilma Burdis

Hey, good morning. Could you walk us through what you see as a more normalized run rate level of earnings for both group and RIS? Thanks.

John McCallion

Okay. I think we -- Wilma, I just want to make sure we were able to hear that. You just said, could you walk through more normalized earnings for group and RIS?

Wilma Burdis

Yes, sorry.

John McCallion

No problem. Okay. I can just start at a high level, and then Ramy can add. I think, obviously, RIS has been impacted by the roll-off of our interest rate caps. And I'd say -- we've provided some guidance on that actually in February, roughly 8 to 10 basis points a quarter. I would say, basically, hit that on the mark. We were a little lower in that roll off and impact in the second quarter, a little higher than the third. Net-net, we probably ended where we expected.
And now we'll see -- we should see some stabilization in those levels for the fourth quarter and on. And I think for RIS, you have to take into account VII, right? And if you think about our earnings this quarter, that's obviously a fairly large delta for us relative to what we think our underlying run rate is for the firm.
I think for group, you have to be -- seasonality matters a lot. So it depends on what quarter we're talking about. But I think, as Ramy pointed out in some of his remarks, that we did have a few things that just went against us this quarter. And I think that's the case also in Japan and others. And it's just one of those things where we've got a few things that we don't expect to recur. They just tend to all happen in one quarter, and they all were relatively small but added to some numbers that all went in one direction. So that's kind of how we probably see the quarter at this juncture. And I know you only said RIS and group, but I thought I'd give you a more holistic view of that.

Wilma Burdis

Okay, thank you. And then just maybe related to an earlier question, but could you just talk about the economic environment that would be supportive of VII returning to more normal levels?

John McCallion

Sure. I think -- as we were referencing earlier, certainly, higher interest rates have caused the sector to have to adjust, right? I mean it's been a sector that has benefited significantly from the lower-forever environment that no longer is forever. And so as rates have risen, things have -- firms have had to shift back to kind of the growth model and -- as opposed to just the leverage model.
And I think that was a strategy; I don't think it was wrong. It was just it was. And so it's taking some time, coupled with the fact that the environment needs exit options and M&A or IPO activity, and that also has slowed a bit as a result of the broader macroenvironment. So we think with the one-time, it's probably one factor that improves the sector.
And the second is I think that as rates start to stabilize and probably the curve starts to stabilize more importantly, that will be kind of a positive aspect to support the sector.

Wilma Burdis

Thank you.

Operator

John Barnidge, Piper Sandler.

John Barnidge

Good morning. Thanks for taking my questions. My question is on real estate. Given the improved positivity in directionality and given it's more of a cycle asset class than anything else, do you think the recovery could be more extended in what goes into VII on a normalized basis post real estate recovery actually could end up being larger on the real estate side? Thank you.

John McCallion

And John, just to make sure I have that, you're asking whether there could be a larger allocation as a result of maybe the outlook? Is that what you mean?

John Barnidge

No, not allocation. Just as the contribution to real estate in the third quarter of overall VII was larger than it was in the prior counters, as that cycle turns, should we actually think of that actually being larger possibly on the other side, not allocation.

John McCallion

I wouldn't -- got it. Okay. I wouldn't -- I would -- I mean we've given some outlook -- in our outlook, we gave some views of returns for the asset classes. And obviously, they were predicated on a certain set of assumptions. Not all those assumptions have come true, and they aren't -- and that's expected. I still think using that relative scaling, even if the returns kind of migrate up, is still a good concept.
And if you think about our real estate exposure in VII today, it's more in the, call it, core, core plus and maybe some bit of opportunistic. So in terms of the expected return on those types of investments, you would think they're lower than what you would be expecting per se, a PE or a venture capital fund.

John Barnidge

That's very helpful. And then my other question, can you talk about the opportunity being opened up due to regulatory reform, not just in Korea but broadly in Asia? Could we be seeing more growth from those markets? Thank you.

John McCallion

Yeah. I think just my -- I'll just say quickly my comment on Korea, and I think you probably caught on to it, is we do tend to work better in a more economic framework because we tend to run our firm very much like that. Obviously, you have to manage to the statutory constraints in any jurisdiction, and so you can't ignore them. But we certainly spend a lot of time thinking about the economic nature of our business.
And so we -- that's one thing we saw in Korea. And I'm not so sure it opens up the environment or for business outlook per se, but we certainly think it's more favorable for us and it avoids having to manage too many different constraints.

John Barnidge

Thank you.

Operator

Due to time constraints, we're going to have to cut the question-and-answer session short. I will now turn the call back over to John Hall for closing remarks.

John Hall

Great. Thank you, everybody, for joining us today. Have a Happy Halloween, and we look forward to seeing you where we can on December 12. Bye.

Operator

Thank you. The meeting has now concluded. Thank you for joining, and have a pleasant day.