Reinsurance Group Of America Reports First-Quarter Results
ST. LOUIS--(BUSINESS WIRE)--April 25, 2005--Reinsurance Group of America, Incorporated (NYSE:RGA), a leading global provider of life reinsurance, reported net income for the first quarter of $66.6 million, or $1.04 per diluted share, compared to net income of $61.7 million, or $0.98 per diluted share, in the prior-year quarter. RGA uses a non-GAAP financial measure called operating income as a basis for analyzing financial results. The definition of operating income and reconciliations to GAAP net income are provided in the following tables. Operating income increased 16 percent to $60.4 million from $52.1 million, while diluted operating earnings per share rose 14 percent to $0.95 from $0.83 in the year-ago quarter. First-quarter net premiums totaled $901.8 million compared to $813.9 million a year ago. Net investment income totaled $157.1 million versus $133.6 million the year before.
A. Greig Woodring, president and chief executive officer, commented, "On a consolidated basis, bottom-line results were in line with expectations, with strong results in Canada and some of the international businesses offsetting poor mortality experience in the U.S. The U.S. segment reported pre-tax net income of $66.0 million compared with $70.2 million in the prior-year quarter, while pre-tax operating income decreased to $56.6 million from $65.3 million. An unusually high number of large claims during the quarter was the primary driver for the mortality experience in the U.S. Net premiums rose 7 percent to $568.1 million from $532.4 million in the prior year, slightly behind our expected full-year growth rate of at least 10 percent. The fundamentals in the U.S. market remain strong.
"For the quarter, our Canada operations reported pre-tax net income of $24.2 million compared to $15.9 million a year ago. Pre-tax operating income was up 60 percent to $23.4 million from $14.6 million. Strong premium levels, favorable mortality and a stronger Canadian dollar contributed to the results. Net premiums increased $13.7 million, or 23 percent for the quarter, and totaled $73.8 million. Approximately $5.1 million of the increase in net premiums and approximately $1.8 million of the increase in pre-tax operating income were the result of a favorable currency exchange rate.
"Other International operations, which include our Asia Pacific and Europe and South Africa segments, reported 18 percent growth in net premiums, increasing to $259.6 million from $220.7 million. Stronger foreign currencies contributed approximately $8.1 million to the premium growth. Pre-tax net income totaled $19.5 million compared to $13.1 million in the prior-year quarter. Pre-tax operating income for the quarter more than doubled to $19.6 million from $9.6 million in the prior year, with foreign currency appreciation contributing approximately $1.3 million to current quarter pre-tax operating income. Results were strong in Europe and South Africa while Asia Pacific was adversely affected by large claims in Japan. During the quarter we strengthened our presence in South Korea when regulators approved our branch license. We expect our office in China to be up and running during the second quarter. As previously indicated, quarterly results in our international operations may be more volatile than our North American operations due to the smaller size and relative maturity of this business."
Woodring concluded, "We reported a good quarter, despite the weakness in the U.S. results. Our segments outside the U.S. combined to contribute nearly $43 million of the $90 million in consolidated pre-tax operating income for the quarter, a clear indication that we are creating diverse sources of mortality-based earnings."
The company also announced that its board of directors declared a regular quarterly dividend of $0.09, payable May 31 to shareholders of record as of May 9.
A conference call to discuss the company's first-quarter results will begin at 9 a.m. Eastern Time on Tuesday, April 26. Interested parties may access the call by dialing 800-262-1292 (domestic) or 719-457-2680 (international). The access code is 804742. A live audio webcast of the conference call will be available on the company's investor relations web page at www.rgare.com. A replay of the conference call will be available at the same address for 15 days following the conference call. A replay of the conference call will also be available via telephone through May 3 at 888-203-1112 (domestic) or 719-457-0820, access code 804742.
Reinsurance Group of America, Incorporated, through its subsidiaries, is among the largest global providers of life reinsurance. In addition to its U.S. and Canadian operations, Reinsurance Group of America, Incorporated has subsidiary companies or offices in Australia, Barbados, Hong Kong, India, Ireland, Japan, Mexico, South Africa, South Korea, Spain, Taiwan, and the United Kingdom. Worldwide, the company has approximately $1.5 trillion of life reinsurance in force, and assets of $14.4 billion. MetLife, Inc. is the beneficial owner of approximately 51 percent of RGA's outstanding shares.
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 changes in mortality, morbidity or claims experience, (2) changes in our financial strength and credit ratings or those of MetLife, Inc. ("MetLife"), the beneficial owner of a majority of our common shares, or its subsidiaries, and the effect of such changes on our future results of operations and financial condition, (3) inadequate risk analysis and underwriting, (4) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in our current and planned markets, (5) the availability and cost of collateral necessary for regulatory reserves and capital, (6) market or economic conditions that adversely affect our ability to make timely sales of investment securities, (7) risks inherent in our risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (8) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (9) adverse litigation or arbitration results, (10) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (11) the stability of and actions by governments and economies in the markets in which we operate, (12) competitive factors and competitors' responses to our initiatives, (13) the success of our clients, (14) successful execution of our entry into new markets, (15) successful development and introduction of new products and distribution opportunities, (16) our ability to successfully integrate and operate reinsurance business that we acquire, (17) regulatory action that may be taken by state Departments of Insurance with respect to us, MetLife, or its subsidiaries, (18) our dependence on third parties, including those insurance companies and reinsurers to which we cede some reinsurance, third-party investment managers and others, (19) the threat of natural disasters or terrorist attacks anywhere in the world where we or our clients do business, (20) changes in laws, regulations, and accounting standards applicable to us, our subsidiaries, or our business, (21) the effect of our status as a holding company and regulatory restrictions on our ability to pay principal of and interest on our debt obligations, and (22) 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.
Operating Income
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 under RGA's 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 company's continuing operations, primarily because that measure excludes the effect of net realized capital gains and losses, as well as changes in the fair value of embedded derivatives and related deferred acquisition costs. These items tend to be highly variable, primarily due to the credit market and interest rate environment and are not necessarily indicative of the performance of the company's 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 company's ongoing operations. The definition of operating income can vary by company and is not considered a substitute for GAAP net income.
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Reconciliation of Net Income From Continuing Operations
to Operating Income
(Dollars in thousands)
Three Months Ended
March 31,
2005 2004
GAAP net income-continuing operations $67,264 $62,994
Realized investment (gains)/losses (2,732) (12,684)
Change in value of embedded derivatives (14,664) (989)
DAC offsets for embedded derivatives and
realized investment (gains)/losses, net 10,553 2,767
Operating income $60,421 $52,088
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Reconciliation of Pre-tax Net Income From Continuing Operations
to Pre-tax Operating Income
(Dollars in thousands)
(Unaudited) Three Months Ended March 31, 2005
Realized Change in
Pre-tax investment value of Pre-tax
net (gains)/ embedded operating
income losses, derivatives, income
(loss) net net (loss)
U.S. Operations:
Traditional $ 45,076 $ 423 $ -- $ 45,499
Asset Intensive 17,626 (2,977)(1) (6,853)(2) 7,796
Financial Reinsurance 3,282 -- -- 3,282
Total U.S. 65,984 (2,554) (6,853) 56,577
Canada Operations 24,209 (834) -- 23,375
Asia Pacific Operations 4,772 79 -- 4,851
Europe & South Africa 14,758 (43) -- 14,715
Other Intl Operations 19,530 36 -- 19,566
Corporate & Other (9,188) (100) -- (9,288)
Consolidated $100,535 $ (3,452) $(6,853) $ 90,230
(1) Asset Intensive is net of $527 DAC offset.
(2) Asset Intensive is net of DAC offsets of $15,708 included in
change in deferred acquisition cost associated with change in
value of embedded derivative.
Three Months Ended March 31, 2004
Realized Change in
Pre-tax investment value of Pre-tax
net (gains)/ embedded operating
income losses, derivatives, income
(loss) net net (loss)
U.S. Operations:
Traditional $64,032 $(7,558) $ -- $ 56,474
Asset Intensive 3,508 (87)(1) 2,678(2) 6,099
Financial Reinsurance 2,707 -- -- 2,707
Total U.S. 70,247 (7,645) 2,678 65,280
Canada Operations 15,920 (1,309) -- 14,611
Asia Pacific Operations 6,797 (347) -- 6,450
Europe & South Africa 6,260 (3,159) -- 3,101
Other Intl Operations 13,057 (3,506) -- 9,551
Corporate & Other (4,409) (5,899) -- (10,308)
Consolidated $94,815 $(18,359) $2,678 $79,134
(1)Asset Intensive is net of $57 DAC offset
(2)Asset Intensive is net of DAC offsets of $4,200 included in
change in deferred acquisition cost associated with change in
value of embedded derivative.
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2005 2004
Revenues:
Net premiums $901,820 $813,874
Investment income, net of
related expenses 157,053 133,560
Realized investment gains/(losses), net 3,979 18,416
Change in value of embedded derivatives 22,561 1,522
Other revenues 10,803 11,850
Total revenues 1,096,216 979,222
Benefits and expenses:
Claims and other policy benefits 738,053 647,054
Interest credited 55,053 47,018
Policy acquisition costs and other
insurance expenses 143,976 143,068
Change in deferred acquisition cost
associated with change in value of
embedded derivatives 15,708 4,200
Other operating expenses 33,006 33,529
Interest expense 9,885 9,538
Total benefits and expenses 995,681 884,407
Income from continuing operations
before income taxes 100,535 94,815
Provision for income taxes 33,271 31,821
Income from continuing operations 67,264 62,994
Discontinued operations:
Loss from discontinued accident
and health operations, net
of income taxes (707) (894)
Cumulative effect of change in
accounting principle -- (361)
Net income $ 66,557 $ 61,739
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
Three Months Ended
(Unaudited) March 31,
2005 2004
Earnings per share from continuing
operations:
Basic earnings per share $ 1.08 $ 1.01
Diluted earnings per share $ 1.05 $ 1.00
Diluted earnings before realized
investment gains/(losses), change
in value of embedded derivatives, and
related deferred acquisition costs $ 0.95 $ 0.83
Earnings per share from net income:
Basic earnings per share $ 1.06 $ 0.99
Diluted earnings per share $ 1.04 $ 0.98
Weighted average number of common
and common equivalent shares
outstanding (in thousands) 63,854 62,708
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Business Summary
At or For the
Three Months Ended
(Unaudited) March 31,
2005 2004
Gross life reinsurance in force (in billions)
North American business $1,125.3 $1,003.0
International business $ 366.6 $ 310.5
Gross life reinsurance written (in billions)
North American business $ 42.7 $ 47.3
International business $ 25.2 $ 30.5
Consolidated cash and invested assets
(in millions) $10,963.0 $9,607.7
Invested asset book yield - trailing
three months excluding funds withheld 5.75% 5.83%
Investment portfolio mix
Cash and short-term investments 1.48% 2.88%
Fixed maturity securities 55.94% 50.53%
Mortgage loans 5.60% 5.25%
Policy loans 8.73% 9.40%
Funds withheld at interest 26.27% 29.79%
Other invested assets 1.98% 2.15%
Short-term debt (in millions) $ 55.4 $ --
Long-term debt (in millions) $ 349.7 $ 404.1
Book value per share outstanding $ 36.79 $ 33.11
Book value per share outstanding, before
impact of FAS 115(a) $ 33.42 $ 29.44
Total stockholder's equity (in millions) 2,303.5 2,060.9
Total stockholder's equity, before
impact of FAS 115(a) (in millions) 2,092.7 1,832.8
Treasury shares 513,918 883,067
Common stock outstanding 62,614,355 62,245,206
(a) Book value per share outstanding and total stockholders' equity,
before impact of FAS 115, is a non-GAAP financial measure that
management believes is important in evaluating the balance sheet
ignoring the effect of mark-to-market adjustments that primarily
relate to changes in interest rates and credit spreads on investment
securities since they were acquired.
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
U.S. OPERATIONS
(Unaudited) (Dollars in thousands)
Three Months Ended March 31, 2005
Asset- Financial Total
Revenues: Traditional Intensive Reinsurance U.S.
Net premiums $ 566,894 $ 1,224 $ -- $568,118
Investment income, net
of related expenses 55,231 58,272 41 113,544
Realized investment
gains/(losses), net (423) 3,504 -- 3,081
Change in value of
embedded derivatives -- 22,561 -- 22,561
Other revenues 921 1,047 7,304 9,272
Total revenues 622,623 86,608 7,345 716,576
Benefits and expenses:
Claims and other
policy benefits 483,261 (1,684) 2 481,579
Interest credited 14,007 40,251 -- 54,258
Policy acquisition costs
and other insurance
expenses 71,017 13,369 2,624 87,010
Change in deferred ac-
quisition cost associated
with change in value
of embedded derivatives -- 15,708 -- 15,708
Other operating expenses 9,262 1,338 1,437 12,037
Total benefits
and expenses 577,547 68,982 4,063 650,592
Income before
income taxes $ 45,076 $ 17,626 $ 3,282 $ 65,984
Three Months Ended March 31, 2004
Asset- Financial Total
Revenues: Traditional Intensive Reinsurance U.S.
Net premiums $ 531,211 $ 1,182 $ -- $532,393
Investment income, net
of related expenses 54,053 45,467 43 99,563
Realized investment
gains, net 7,558 144 -- 7,702
Change in value of
embedded derivatives -- 1,522 -- 1,522
Other revenues 1,334 1,670 6,380 9,384
Total revenues 594,156 49,985 6,423 650,564
Benefits and expenses:
Claims and other
policy benefits 430,891 (1,021) -- 429,870
Interest credited 12,078 34,494 -- 46,572
Policy acquisition costs
and other insurance
expenses 75,431 7,645 2,294 85,370
Change in deferred ac-
quisition cost associated
with change in value of
embedded derivatives -- 4,200 -- 4,200
Other operating expenses 11,724 1,159 1,422 14,305
Total benefits
and expenses 530,124 46,477 3,716 580,317
Income before
income taxes $ 64,032 $ 3,508 $ 2,707 $ 70,247
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CANADIAN OPERATIONS
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2005 2004
Revenues:
Net premiums $ 73,756 $ 60,148
Investment income, net of related expenses 28,760 23,980
Realized investment gains, net 834 1,309
Other revenues 34 38
Total revenues 103,384 85,475
Benefits and expenses:
Claims and other policy benefits 68,646 59,366
Interest credited 357 377
Policy acquisition costs and other
insurance expenses 6,713 7,083
Other operating expenses 3,459 2,729
Total benefits and expenses 79,175 69,555
Income before income taxes $ 24,209 $ 15,920
Europe & South Africa
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2005 2004
Revenues:
Net premiums $141,358 $117,203
Investment income, net of related expenses 2,555 1,544
Realized investment gains, net 43 3,159
Other revenues 52 438
Total revenues 144,008 122,344
Benefits and expenses:
Claims and other policy benefits 96,332 81,997
Interest credited 363 --
Policy acquisition costs and other
insurance expenses 26,396 29,031
Other operating expenses 5,660 4,682
Interest expense 499 374
Total benefits and expenses 129,250 116,084
Income before income taxes $ 14,758 $ 6,260
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Asia Pacific
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2005 2004
Revenues:
Net premiums $118,207 $103,539
Investment income, net of related expenses 6,228 3,735
Realized investment gains/(losses), net (79) 347
Other revenues (187) 635
Total revenues 124,169 108,256
Benefits and expenses:
Claims and other policy benefits 90,660 74,845
Policy acquisition costs and other
insurance expenses 23,655 21,530
Other operating expenses 4,674 4,742
Interest expense 408 342
Total benefits and expenses 119,397 101,459
Income before income taxes $ 4,772 $ 6,797
CORPORATE AND OTHER
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2005 2004
Revenues:
Net premiums $ 381 $ 591
Investment income, net of related expenses 5,966 4,738
Realized investment gains, net 100 5,899
Other revenues 1,632 1,355
Total revenues 8,079 12,583
Benefits and expenses:
Claims and other policy benefits 835 976
Interest credited 75 69
Policy acquisition costs and other
insurance expenses 203 54
Other operating expenses 7,176 7,071
Interest expense 8,978 8,822
Total benefits and expenses 17,267 16,992
Income before income taxes $ (9,188) $ (4,409)
CONTACT: Reinsurance Group of America, Incorporated, St. Louis
Jack B. Lay, 636-736-7439
SOURCE: Reinsurance Group of America, Incorporated