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8-K - FORM 8-K - REINSURANCE GROUP OF AMERICA INC | c64288e8vk.htm |
EX-99.2 - EX-99.2 - REINSURANCE GROUP OF AMERICA INC | c64288exv99w2.htm |
Exhibit 99.1
PRESS RELEASE
REINSURANCE GROUP OF AMERICA REPORTS FIRST-QUARTER RESULTS
| Earnings per diluted share rose to $2.18 (net income) and $1.61 (operating income*) |
| Premiums up 7 percent to $1.7 billion |
| $6.5 million estimated net claims for earthquakes in Japan and New Zealand |
ST. LOUIS, April 25, 2011 Reinsurance Group of America, Incorporated (NYSE:RGA),
a leading global provider of life reinsurance, reported first-quarter net income of $160.8 million,
or $2.18 per diluted share, compared to $122.4 million, or $1.64 per diluted share in the
prior-year quarter. Operating income* totaled $118.8 million, or $1.61 per diluted share, compared
to $93.0 million, or $1.25 per diluted share in the year-ago quarter. Operating income per diluted
share increased 29 percent over the year-ago quarter.
Quarterly Results | ||||||||
($ in thousands, except per share data) | 2011 | 2010 | ||||||
Net premiums |
$ | 1,736,130 | $ | 1,628,464 | ||||
Net income |
160,816 | 122,439 | ||||||
Net income per diluted share |
2.18 | 1.64 | ||||||
Operating income* |
118,827 | 93,008 | ||||||
Operating income per diluted share* |
1.61 | 1.25 | ||||||
Book value per share |
68.06 | 56.98 | ||||||
Book value per share (excl. Accumulated
Other Comprehensive Income AOCI)* |
55.88 | 50.49 | ||||||
Total assets |
29,510,019 | 26,722,458 |
* | See Use of Non-GAAP Financial Measures below |
Consolidated net premiums increased 7 percent to $1,736.1 million from $1,628.5 million in the
prior-year period, including a 3 percent contribution from changes in foreign currency exchange
rates. Investment income rose 22 percent to $371.0 million from $304.3 million in the year-earlier
quarter, primarily due to a significant increase in the fair value of option contracts supporting
equity-indexed annuities. Investment income was flat without these option contracts as average
invested assets increased approximately $1.7 billion and average yields decreased from 5.84 percent
to 5.35 percent quarter over quarter. The average investment yield in the fourth quarter of 2010
was 5.43 percent. Net foreign currency fluctuations contributed $3.0 million, after taxes, to
operating income.
A. Greig Woodring, president and chief executive officer, commented, RGAs first quarter of 2011
was eventful on several fronts as it included capital refinement activity, natural disasters in the
Asia Pacific region and RGAs first investor day conference. As outlined at that conference, we
executed several capital refinement strategies, including redeeming a convertible security and
purchasing 5.5 million shares, which collectively lowered shareholders equity by approximately $178 million
and our diluted share count by roughly 1.9 million shares. Our capital and liquidity positions
remain strong, and our investment portfolio is appropriately positioned. Investment impairments
were not material this quarter.
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Overall, claims experience for the quarter was in line with our expectations, including somewhat
elevated levels of claims in the U.S. related to first-quarter seasonality. Importantly, our
international operations performed well, despite providing $6.5 million for estimated net claims
related to the earthquakes in Japan and New Zealand.
Despite the mortality seasonality and the anticipated losses from the Asia Pacific natural
disasters, we generated an annualized operating return on equity of 11.5 percent this quarter. We
continue to target an enterprise-wide return of 13 percent in the intermediate term. RGA is
appropriately capitalized, and we continue to evaluate capital deployment opportunities. We
purposefully lowered our excess capital position this quarter to a more efficient level and, at the
same time, eliminated the source of significant future share dilution embedded in the convertible
securities we redeemed in March. Should the need arise, we are confident in our ability to raise
capital for any attractive large block transactions or acquisitions. We are well-positioned to
serve our clients in all major life reinsurance markets across the globe.
SEGMENT RESULTS
U.S.
The U.S. Traditional sub-segment reported pre-tax net income of $78.4 million for the quarter, up
from $63.8 million last year. Pre-tax operating income increased to $69.5 million from $61.0
million the year before. Net premiums were up 4 percent to $935.1 million from $903.0 million in
the prior-year quarter. RGA continues to be a dominant player in the U.S. market with the number
one market share of recurring business. According to the recently released reinsurance market
survey sponsored by the Society of Actuaries (SOA), RGAs number one market position represented 26
percent of recurring production in the U.S. in 2010, up from 22 percent in 2009. Further, U.S.
market share as measured by reinsurance in force increased to 18 percent.
The U.S. Asset Intensive business reported strong pre-tax income of $66.4 million compared with
$64.6 million a year ago. Both periods benefited from market-driven changes in the fair values of
various free-standing and embedded derivatives. Excluding the impact of those derivatives, pre-tax
operating income increased to $20.8 million from $16.5 million a year ago. Strong equity market
performance contributed to the better-than-expected results this quarter.
Canada
Canadian operations reported pre-tax net income of $30.7 million compared with $19.0 million in the
first quarter of 2010. Pre-tax operating income increased to $26.3 million from $16.0 million in
the prior-year period, reflecting improved mortality experience. Foreign currency fluctuations
benefited pre-tax operating income by approximately $0.5 million. Premiums increased 3 percent to
$215.0 million from $208.7 million last year. On a Canadian dollar basis, net premiums decreased 2
percent, primarily due to client reporting volatility associated with creditor reinsurance
business. Excluding the creditor business, local currency premiums rose 17 percent. According to
the SOA survey referenced above, RGA increased its leading recurring market share in Canada to 34
percent in 2010, and its in force market share totaled 25 percent.
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Asia Pacific
Asia Pacific reported pre-tax net income of $25.3 million compared with $26.4 million in the first
quarter of 2010. Pre-tax operating income was slightly lower at $25.7 million versus $26.6 million
a year ago, primarily attributable to the $6.5 million in estimated net losses from the Japan and
New Zealand earthquakes. Foreign currency fluctuations added $1.6 million to the current period
pre-tax operating result. Premiums increased 9 percent to $311.5 million from $285.8 million in
the prior year. On a local currency basis, premiums were relatively flat.
Europe & South Africa
Europe & South Africa pre-tax net income increased to $26.3 million from $10.7 million in the
year-ago quarter. Pre-tax operating income increased to $26.0 million from $10.2 million last year
due to improved claims experience, primarily in South Africa and Continental Europe. Net premiums
totaled $269.1 million, up 24 percent from $217.7 million in the prior-year quarter, primarily
reflecting strong production in the UK and several other European markets. On a local currency
basis, net premiums were up 21 percent this quarter. Foreign currency fluctuations did not
materially affect pre-tax operating income.
Corporate and Other
Corporate and Other reported pre-tax net income of $8.6 million and pre-tax operating income of
$3.6 million for the quarter. Results from this segment include investment income and realized
gains and losses associated with unallocated assets, debt servicing costs and other
corporate-related activities.
Dividend Declaration
The companys board of directors declared a regular quarterly dividend of $0.12, payable May 25 to
shareholders of record as of May 4.
Earnings Conference Call
A conference call to discuss first-quarter results will begin at 9 a.m. Eastern Time on Tuesday,
April 26. Interested parties may access the call by dialing 877-604-9670 (domestic) or
719-325-4792 (international). The access code is 4306690. A live audio webcast of the conference
call will be available on the companys investor relations website at www.rgare.com. A
replay of the conference call will be available at the same address for 90 days following the
conference call. A telephonic replay will also be available through May 4 at 888-203-1112
(domestic) or 719-457-0820 (international), access code 4306690.
The company has posted to its website a Quarterly Financial Supplement that includes financial
information for all segments as well as information on its investment portfolio. Additionally, the
company posts periodic reports, press releases and other useful information on its investor
relations website.
Use of Non-GAAP Financial Measures
RGA uses a non-GAAP financial measure called operating income as a basis for analyzing financial
results. This measure also serves as a basis for establishing target levels and awards
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under RGAs management incentive programs. Management believes that operating income, on a pre-tax
and after-tax basis, better measures the ongoing profitability and underlying trends of the
companys continuing operations, primarily because that measure excludes the effect of net
investment related gains and losses, as well as changes in the fair value of certain embedded
derivatives and related deferred acquisition costs. These items can be volatile, primarily due to
the credit market and interest rate environment, and are not necessarily indicative of the
performance of the companys underlying businesses. Additionally, operating income excludes any
net gain or loss from discontinued operations and the cumulative effect of any accounting changes,
which management believes are not indicative of the companys ongoing operations. The definition
of operating income can vary by company and is not considered a substitute for GAAP net income.
Reconciliations to GAAP net income are provided in the following tables. Additional financial
information can be found in the Quarterly Financial Supplement on RGAs Investor Relations website
at www.rgare.com in the Quarterly Results tab and in the Featured Report section.
Book value per share outstanding before impact of AOCI is a non-GAAP financial measure that
management believes is important in evaluating the balance sheet in order to ignore the effects of
unrealized amounts primarily associated with mark-to-market adjustments on investments and foreign
currency translation.
Operating return on equity is a non-GAAP financial measure calculated as operating income divided
by average shareholders equity excluding AOCI.
About RGA
Reinsurance Group of America, Incorporated is among the largest global providers of life
reinsurance with subsidiary companies or offices in Australia, Barbados, Bermuda, Canada, China,
France, Germany, Hong Kong, India, Ireland, Italy, Japan, Mexico, the Netherlands, Poland, South
Africa, South Korea, Spain, Taiwan, the United Kingdom and the United States. Worldwide, the
company has approximately $2.6 trillion of life reinsurance in force, and assets of $29.5 billion.
Cautionary Statement Regarding Forward-looking Statements
This release contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including, among others, statements relating to projections of the
earnings, revenues, income or loss, future financial performance and growth potential of
Reinsurance Group of America, Incorporated and its subsidiaries (which we refer to in the following
paragraphs as we, us or our). The words intend, expect, project, estimate,
predict, anticipate, should, believe, and other similar expressions also are intended to
identify forward-looking statements. Forward-looking statements are inherently subject to risks
and uncertainties, some of which cannot be predicted or quantified. Future events and actual
results, performance and achievements could differ materially from those set forth in, contemplated
by or underlying the forward-looking statements.
Numerous important factors could cause actual results and events to differ materially from those
expressed or implied by forward-looking statements including, without limitation, (1) adverse
capital and credit market conditions and their impact on our liquidity, access to capital, and cost
of capital, (2) the impairment of other financial institutions and its effect on our business, (3)
requirements to post collateral or make payments due to declines in market value of assets
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subject to our collateral arrangements, (4) the fact that the determination of allowances and
impairments taken on our investments is highly subjective, (5) adverse changes in mortality,
morbidity, lapsation, or claims experience, (6) changes in our financial strength and credit
ratings and the effect of such changes on our future results of operations and financial condition,
(7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged
economic downturn affecting the demand for insurance and reinsurance in our current and planned
markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital,
(10) market or economic conditions that adversely affect the value of our investment securities or
result in the impairment of all or a portion of the value of certain of our investment securities,
(11) market or economic conditions that adversely affect our ability to make timely sales of
investment securities, (12) risks inherent in our risk management and investment strategy,
including changes in investment portfolio yields due to interest rate or credit quality changes,
(13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and
real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves,
resources, and accurate information relating to settlements, awards, and terminated and
discontinued lines of business, (16) the stability of and actions by governments and economies in
the markets in which we operate, (17) competitive factors and competitors responses to our
initiatives, (18) the success of our clients, (19) successful execution of our entry into new
markets, (20) successful development and introduction of new products and distribution
opportunities, (21) our ability to successfully integrate and operate reinsurance business that we
acquire, (22) action by regulators who have authority over our reinsurance operations in the
jurisdictions in which we operate, (23) our dependence on third parties, including those insurance
companies and reinsurers to which we cede some reinsurance, third-party investment managers, and
others, (24) the threat of natural disasters, catastrophes, terrorist attacks, epidemics, or
pandemics anywhere in the world where we or our clients do business, (25) changes in laws,
regulations, and accounting standards applicable to us, our subsidiaries, or our business, (26) the
effect of our status as an insurance holding company and regulatory restrictions on our ability to
pay principal and interest on our debt obligations, and (27) other risks and uncertainties
described in this document and in our other filings with the Securities and Exchange Commission.
Forward-looking statements should be evaluated together with the many risks and uncertainties that
affect our business, including those mentioned in this document and described in the periodic
reports we file with the Securities and Exchange Commission. These forward-looking statements
speak only as of the date on which they are made. We do not undertake any obligations to update
these forward-looking statements, even though our situation may change in the future. We qualify
all of our forward-looking statements by these cautionary statements. For a discussion of the
risks and uncertainties that could cause actual results to differ materially from those contained
in the forward-looking statements, you are advised to review the risk factors in our 2010 Form
10-K.
Investor Contact
John W. Hayden
Senior Vice President Controller and Investor Relations
(636) 736-7000
Senior Vice President Controller and Investor Relations
(636) 736-7000
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Reconciliation of Consolidated Net Income to Operating Income
(Dollars in thousands)
Reconciliation of Consolidated Net Income to Operating Income
(Dollars in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
(Unaudited) | 2011 | 2010 | ||||||
GAAP net income |
$ | 160,816 | $ | 122,439 | ||||
Reconciliation to operating income: |
||||||||
Capital (gains) losses, derivatives and other, included in
investment related (gains) losses, net |
191 | (47 | ) | |||||
Capital (gains) losses on funds withheld: |
||||||||
Included in investment income |
7,827 | 53 | ||||||
Included in policy acquisition costs and other insurance
expenses |
(1,251 | ) | (53 | ) | ||||
Embedded derivatives: |
||||||||
Included in investment related (gains) losses, net |
(80,073 | ) | (84,374 | ) | ||||
Included in interest credited |
(17,388 | ) | (14,574 | ) | ||||
Included in policy acquisition costs and other insurance
expenses |
1,914 | 2,113 | ||||||
DAC offset, net |
47,168 | 67,451 | ||||||
Gain on repurchase of collateral finance facility securities |
(3,231 | ) | | |||||
Loss on retirement of Preferred Income Equity Redeemable
Securities (PIERS) |
2,854 | | ||||||
Operating income |
$ | 118,827 | $ | 93,008 | ||||
Reconciliation of Consolidated Pre-tax Net Income to Pre-tax Operating Income
(Dollars in thousands)
(Dollars in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
(Unaudited) | 2011 | 2010 | ||||||
Income before income taxes |
$ | 241,849 | $ | 193,315 | ||||
Reconciliation to pre-tax operating income: |
||||||||
Capital (gains) losses, derivatives and other, included in
investment related (gains) losses, net |
1,099 | 371 | ||||||
Capital (gains) losses on funds withheld: |
||||||||
Included in investment income |
12,041 | 82 | ||||||
Included in policy acquisition costs and other insurance
expenses |
(1,925 | ) | (81 | ) | ||||
Embedded derivatives: |
||||||||
Included in investment related (gains) losses, net |
(123,189 | ) | (129,806 | ) | ||||
Included in interest credited |
(26,751 | ) | (22,422 | ) | ||||
Included in policy acquisition costs and other insurance
expenses |
2,944 | 3,250 | ||||||
DAC offset, net |
72,567 | 103,769 | ||||||
Gain on repurchase of collateral finance facility securities |
(4,971 | ) | | |||||
Loss on retirement of PIERS |
4,391 | | ||||||
Pre-tax operating income |
$ | 178,055 | $ | 148,478 | ||||
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Reconciliation of Pre-tax Net Income to Pre-tax Operating Income
(Dollars in thousands)
Reconciliation of Pre-tax Net Income to Pre-tax Operating Income
(Dollars in thousands)
Three Months Ended March 31, 2011 | ||||||||||||||||||||
Net (gain) | ||||||||||||||||||||
loss on | ||||||||||||||||||||
Capital | Change in | repurchase | ||||||||||||||||||
(gains) losses, | value of | and | Pre-tax | |||||||||||||||||
Pre-tax net | derivatives | embedded | retirement | operating | ||||||||||||||||
(Unaudited) | income | and other, net | derivatives, net | of securities | income | |||||||||||||||
U.S. Operations: |
||||||||||||||||||||
Traditional |
$ | 78,399 | $ | (8,875 | ) | $ | | $ | | $ | 69,524 | |||||||||
Asset Intensive |
66,378 | 6,136 | (1) | (51,745 | )(2) | | 20,769 | |||||||||||||
Financial Reinsurance |
6,120 | 35 | | | 6,155 | |||||||||||||||
Total U.S. |
150,897 | (2,704 | ) | (51,745 | ) | | 96,448 | |||||||||||||
Canada Operations |
30,671 | (4,389 | ) | | | 26,282 | ||||||||||||||
Europe & South Africa |
26,319 | (293 | ) | | | 26,026 | ||||||||||||||
Asia Pacific Operations |
25,328 | 330 | | | 25,658 | |||||||||||||||
Corporate and Other |
8,634 | (4,413 | ) | | (580 | ) | 3,641 | |||||||||||||
Consolidated |
$ | 241,849 | $ | (11,469 | ) | $ | (51,745 | ) | (580 | ) | $ | 178,055 | ||||||||
(1) Asset Intensive is net of $(22,684) DAC offset.
(2) Asset Intensive is net of $95,251 DAC offset.
|
||||||||||||||||||||
Three Months Ended March 31, 2010 | ||||||||||||||||||||
Capital | Change in | |||||||||||||||||||
(gains) losses, | value of | Pre-tax | ||||||||||||||||||
Pre-tax net | derivatives | embedded | operating | |||||||||||||||||
(Unaudited) | income | and other, net | derivatives, net | income | ||||||||||||||||
U.S. Operations: |
||||||||||||||||||||
Traditional |
$ | 63,825 | $ | (2,848 | ) | $ | | $ | 60,977 | |||||||||||
Asset Intensive |
64,562 | (10,808 | )(1) | (37,208 | )(2) | 16,546 | ||||||||||||||
Financial Reinsurance |
3,185 | 9 | | 3,194 | ||||||||||||||||
Total U.S. |
131,572 | (13,647 | ) | (37,208 | ) | 80,717 | ||||||||||||||
Canada Operations |
18,973 | (2,955 | ) | | 16,018 | |||||||||||||||
Europe & South Africa |
10,657 | (459 | ) | | 10,198 | |||||||||||||||
Asia Pacific Operations |
26,445 | 120 | | 26,565 | ||||||||||||||||
Corporate and Other |
5,668 | 9,312 | | 14,980 | ||||||||||||||||
Consolidated |
$ | 193,315 | $ | (7,629 | ) | $ | (37,208 | ) | $ | 148,478 | ||||||||||
(1) | Asset Intensive is net of $(8,001) DAC offset. | |
(2) | Asset Intensive is net of $111,770 DAC offset. |
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Per Share and Shares Data
(In thousands, except per share data)
Per Share and Shares Data
(In thousands, except per share data)
Three Months Ended | ||||||||
March 31, | ||||||||
(Unaudited) | 2011 | 2010 | ||||||
Diluted earnings per share from operating income |
$ | 1.61 | $ | 1.25 | ||||
Earnings per share from net income: |
||||||||
Basic earnings per share |
$ | 2.20 | $ | 1.68 | ||||
Diluted earnings per share |
$ | 2.18 | $ | 1.64 | ||||
Weighted average number of common and common
equivalent shares outstanding |
73,836 | 74,578 | ||||||
At or for the Three Months | ||||||||
Ended March 31, | ||||||||
(Unaudited) | 2011 | 2010 | ||||||
Treasury shares |
5,341 | 261 | ||||||
Common shares outstanding |
73,797 | 73,103 | ||||||
Book value per share outstanding |
$ | 68.06 | $ | 56.98 | ||||
Book value per share outstanding, before impact of AOCI |
$ | 55.88 | $ | 50.49 |
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Dollars in thousands)
Condensed Consolidated Statements of Income
(Dollars in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
(Unaudited) | 2011 | 2010 | ||||||
Revenues: |
||||||||
Net premiums |
$ | 1,736,130 | $ | 1,628,464 | ||||
Investment income, net of related expenses |
371,040 | 304,258 | ||||||
Investment related gains (losses), net: |
||||||||
Other-than-temporary impairments on fixed
maturity securities |
(1,556 | ) | (7,430 | ) | ||||
Other-than-temporary impairments on fixed
maturity securities transferred to (from)
accumulated other comprehensive income |
| 2,344 | ||||||
Other investment related gains (losses), net |
125,176 | 136,271 | ||||||
Total investment related gains (losses), net |
123,620 | 131,185 | ||||||
Other revenue |
51,645 | 36,278 | ||||||
Total revenues |
2,282,435 | 2,100,185 | ||||||
Benefits and expenses: |
||||||||
Claims and other policy benefits |
1,469,449 | 1,375,180 | ||||||
Interest credited |
106,063 | 56,934 | ||||||
Policy acquisition costs and other insurance expenses |
331,153 | 366,302 | ||||||
Other operating expenses |
106,150 | 91,199 | ||||||
Interest expense |
24,569 | 15,449 | ||||||
Collateral finance facility expense |
3,202 | 1,806 | ||||||
Total benefits and expenses |
2,040,586 | 1,906,870 | ||||||
Income before income taxes |
241,849 | 193,315 | ||||||
Income tax expense |
81,033 | 70,876 | ||||||
Net income |
$ | 160,816 | $ | 122,439 | ||||
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