Reinsurance Group Of America Reports First-Quarter Results
ST. LOUIS, Apr 24, 2006 (BUSINESS WIRE) -- Reinsurance Group of America, Incorporated (NYSE:RGA), a leading global provider of life reinsurance, reported net income for the first quarter of $69.1 million, or $1.10 per diluted share, compared to $66.6 million, or $1.04 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 13 percent to $68.5 million, or $1.09 per diluted share, from $60.4 million, $0.95 per diluted share in the year-ago quarter. First-quarter net premiums rose 10 percent, to $992.4 million, from $901.8 million a year ago. Net investment income totaled $186.9 million versus $157.1 million the year before.
A. Greig Woodring, president and chief executive officer, commented, "On a consolidated basis, bottom-line results were strong, while operating segment results were mixed. The U.S. segment reported good results with pre-tax net income totaling $80.3 million for the quarter versus $68.5 million in the prior-year quarter. Pre-tax operating income rose 38 percent to $82.5 million from $59.7 million the year before. Mortality experience for the quarter was within our range of expectations contrasted with poor mortality experience in the prior-year quarter. Net premiums rose 8 percent to $613.3 million from $568.0 million. We expect that rate of increase to move up slightly as we progress through the year.
"For the quarter, our Canada operations reported pre-tax net income of $8.4 million compared to $15.7 million a year ago. Pre-tax operating income was down 43 percent to $8.6 million from $15.0 million. Mortality experience was worse than expected, after having been favorable for eight consecutive quarters. Net premiums increased 28 percent to $94.4 million from $73.8 million. Current quarter net premiums and pre-tax operating income benefited from a favorable currency exchange rate relative to the prior year by approximately $5.5 million and $0.1 million, respectively.
"Other International operations, which include our Asia Pacific and Europe and South Africa segments, were mixed with weaker-than-expected results in Asia Pacific more than offset by stronger-than-expected results in Europe and South Africa. Asia Pacific reported pre-tax net income of $6.6 million compared with pre-tax net income of $2.9 million in the year-ago quarter. Pre-tax operating income increased to $6.6 million from $3.0 million. Mortality in the current quarter was adverse, most notably in South Korea, while the prior-year quarter reflected poor mortality experience in Japan. Such mortality variances are not unusual. Outside of South Korea, results in Asia Pacific were generally in line with our expectations. Net premiums increased 18 percent to $139.2 million from $118.2 million. Foreign currency fluctuations relative to prior year adversely affected net premiums and pre-tax operating income by approximately $5.8 million and $0.6 million, respectively.
"Bottom-line results in Europe and South Africa were very good, driven by positive mortality experience in all locations. Pre-tax net income and pre-tax operating income each totaled $14.8 million compared to $14.5 million a year ago, when results were quite strong. Net premiums increased 3 percent for the quarter to $145.2 million. This moderation in the rate of growth reflects a slowdown in the underlying UK life insurance market and adverse currency exchange trends in the British pound. Foreign currency exchange fluctuations adversely affected net premiums and pre-tax operating income by approximately $9.7 million and $1.2 million, respectively."
Woodring concluded, "We are off to a good start in 2006. The competitive environment around the world continues to support rational pricing and we continue to steadily increase our market share and base of business in many of our key markets."
Effective this quarter, the company changed its method of allocating capital to its segments from a method based upon regulatory capital requirements to one based upon underlying economic capital levels. This approach is based upon a more detailed, internally developed risk capital model that management believes better captures the unique risks inherent in each segment's business. The primary effect of the change relates to the amount of net investment income and capital charges that are allocated to the segments. This change does not affect the company's consolidated financial results. To enhance comparability, the previously reported prior-period segment results have been adjusted to reflect this new allocation.
The company also announced that its board of directors declared a regular quarterly dividend of $0.09, payable May 26 to shareholders of record as of May 5.
A conference call to discuss the company's first-quarter results will begin at 9 a.m. Eastern Time on Tuesday, April 25. Interested parties may access the call by dialing 800-231-9012 (domestic) or 719-457-2617 (international). The access code is 8243986. 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 three months following the conference call. A replay of the conference call will also be available via telephone through May 2 at 888-203-1112 (domestic) or 719-457-0820, access code 8243986.
Reinsurance Group of America, Incorporated, through its subsidiaries, RGA Reinsurance Company and RGA Life Reinsurance Company of Canada, 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, China, Hong Kong, India, Ireland, Japan, Mexico, South Africa, South Korea, Spain, Taiwan, and the United Kingdom. Worldwide, the company has approximately $1.8 trillion of life reinsurance in force, and assets of $16.6 billion. MetLife, Inc. is the beneficial owner of approximately 53 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, catastrophes, terrorist attacks, epidemics or pandemics 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,
2006 2005
GAAP net income-continuing operations $70,580 $67,264
Investment related (gains)/losses (561) (2,732)
Change in value of embedded derivatives (2,959) (14,664)
DAC offsets for embedded derivatives and
investment related (gains)/losses, net 1,394 10,553
Operating income $68,454 $60,421
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, 2006
Investment Change in
Pre-tax related value of Pre-tax
net (gains)/ embedded operating
income losses, derivatives, income
(loss) net net (loss)
U.S. Operations:
Traditional $ 69,399 $ 1,229 $ -- $ 70,628
Asset Intensive 7,283 2,720 (1) (1,795)(2) 8,208
Financial Reinsurance 3,654 -- -- 3,654
Total U.S. 80,336 3,949 (1,795) 82,490
Canada Operations 8,431 199 -- 8,630
Asia Pacific Operations 6,614 (15) -- 6,599
Europe & South Africa 14,797 (34) -- 14,763
Other Intl Operations 21,411 (49) -- 21,362
Corporate & Other (1,978) (5,344) -- (7,322)
Consolidated $108,200 $(1,245) $(1,795) $105,160
(1) Asset Intensive is net of $(613) DAC offset.
(2) Asset Intensive is net of DAC offsets of $2,757 included in
change in deferred acquisition cost associated with change in
value of embedded derivative.
Three Months Ended March 31, 2005
Investment Change in
Pre-tax related value of Pre-tax
net (gains)/ embedded operating
income losses, derivatives, income
(loss) net net (loss)
U.S. Operations:
Traditional $ 49,488 $ 1,031 $ -- $ 50,519
Asset Intensive 15,702 (2,989)(1) (6,853)(2) 5,860
Financial Reinsurance 3,306 2 -- 3,308
Total U.S. 68,496 (1,956) (6,853) 59,687
Canada Operations 15,662 (635) -- 15,027
Asia Pacific Operations 2,910 47 -- 2,957
Europe & South Africa 14,513 (14) -- 14,499
Other Intl Operations 17,423 33 -- 17,456
Corporate & Other (1,046) (894) -- (1,940)
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.
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2006 2005
Revenues:
Net premiums $992,442 $901,820
Investment income, net of
related expenses 186,941 157,053
Investment related gains, net 632 3,979
Change in value of embedded derivatives 4,552 22,561
Other revenues 14,530 10,803
Total revenues 1,199,097 1,096,216
Benefits and expenses:
Claims and other policy benefits 811,513 738,053
Interest credited 61,529 55,053
Policy acquisition costs and other
insurance expenses 151,804 143,976
Change in deferred acquisition cost
associated with change in value of
embedded derivatives 2,757 15,708
Other operating expenses 46,527 33,006
Interest expense 16,767 9,885
Total benefits and expenses 1,090,897 995,681
Income from continuing operations
before income taxes 108,200 100,535
Provision for income taxes 37,620 33,271
Income from continuing operations 70,580 67,264
Discontinued operations:
Loss from discontinued accident
and health operations, net
of income taxes (1,510) (707)
Net income $ 69,070 $ 66,557
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,
2006 2005
Earnings per share from continuing
operations:
Basic earnings per share $ 1.15 $ 1.08
Diluted earnings per share $ 1.13 $ 1.05
Diluted earnings before Investment
related gains/(losses), change
in value of embedded derivatives, and
related deferred acquisition costs $ 1.09 $ 0.95
Earnings per share from net income:
Basic earnings per share $ 1.13 $ 1.06
Diluted earnings per share $ 1.10 $ 1.04
Weighted average number of common
and common equivalent shares
outstanding (in thousands) 62,617 63,854
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Business Summary
At or For the
Three Months Ended
(Unaudited) March 31,
2006 2005
Gross life reinsurance in force (in billions)
North American business $1,244.2 $1,125.3
International business $ 528.1 $ 366.6
Gross life reinsurance written (in billions)
North American business $ 57.2 $ 42.7
International business $ 23.1 $ 25.2
Consolidated cash and invested assets
(in millions) $12,708.0 $10,963.0
Invested asset book yield - trailing
three months excluding funds withheld 5.78% 5.75%
Investment portfolio mix
Cash and short-term investments 3.74% 1.48%
Fixed maturity securities 53.37% 55.94%
Mortgage loans 5.27% 5.60%
Policy loans 7.66% 8.73%
Funds withheld at interest 28.42% 26.27%
Other invested assets 1.54% 1.98%
Short-term debt (in millions) $ 100.0 $ 55.4
Long-term debt (in millions) $ 699.7 $ 349.7
Company-obligated mandatorily
redeemable preferred securities
of subsidiary (in millions) $ 158.6 $ 158.5
Book value per share outstanding $ 40.62 $ 36.79
Book value per share outstanding, before
impact of FAS 115(a) $ 36.58 $ 33.42
Total stockholders' equity (in millions) 2,484.9 2,303.5
Total stockholders' equity, before
impact of FAS 115(a) (in millions) 2,237.7 2,092.7
Treasury shares 1,948,936 513,918
Common stock outstanding 61,179,337 62,614,355
(a) Book value per share outstanding and total stockholders' equity,
before impact of FAS 115, are non-GAAP financial measures that
management believes are 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, 2006
Asset- Financial Total
Revenues: Traditional Intensive Reinsurance U.S.
Net premiums $ 611,837 $ 1,474 $ -- $613,311
Investment income, net
of related expenses 71,042 70,897 (3) 141,936
Investment related
losses, net (1,229) (3,333) -- (4,562)
Change in value of
embedded derivatives -- 4,552 -- 4,552
Other revenues (320) 3,289 7,346 10,315
Total revenues 681,330 76,879 7,343 765,552
Benefits and expenses:
Claims and other
policy benefits 508,146 (869) 1 507,278
Interest credited 11,487 49,537 -- 61,024
Policy acquisition costs
and other insurance
expenses 82,172 16,395 2,334 100,901
Change in deferred ac-
quisition cost associated
with change in value
of embedded derivatives -- 2,757 -- 2,757
Other operating expenses 10,126 1,776 1,354 13,256
Total benefits
and expenses 611,931 69,596 3,689 685,216
Income before
income taxes $ 69,399 $ 7,283 $ 3,654 $ 80,336
Three Months Ended March 31, 2005
Asset- Financial Total
Revenues: Traditional Intensive Reinsurance U.S.
Net premiums $ 566,794 $ 1,224 $ -- $568,018
Investment income, net
of related expenses 63,325 56,654 70 120,049
Investment related
gains/(losses), net (1,031) 3,516 (2) 2,483
Change in value of
embedded derivatives -- 22,561 -- 22,561
Other revenues 566 1,047 6,638 8,251
Total revenues 629,654 85,002 6,706 721,362
Benefits and expenses:
Claims and other
policy benefits 483,262 (1,684) 2 481,580
Interest credited 14,007 40,251 -- 54,258
Policy acquisition costs
and other insurance
expenses 73,638 13,687 1,961 89,286
Change in deferred ac-
quisition cost associated
with change in value of
embedded derivatives -- 15,708 -- 15,708
Other operating expenses 9,259 1,338 1,437 12,034
Total benefits
and expenses 580,166 69,300 3,400 652,866
Income before
income taxes $ 49,488 $ 15,702 $ 3,306 $ 68,496
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CANADIAN OPERATIONS
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2006 2005
Revenues:
Net premiums $ 94,402 $ 73,756
Investment income, net of related expenses 25,305 22,537
Investment related gains/(losses), net (199) 635
Other revenues -- 34
Total revenues 119,508 96,962
Benefits and expenses:
Claims and other policy benefits 89,079 68,645
Interest credited 205 357
Policy acquisition costs and other
insurance expenses 17,820 8,838
Other operating expenses 3,973 3,460
Total benefits and expenses 111,077 81,300
Income before income taxes $ 8,431 $ 15,662
Europe & South Africa
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2006 2005
Revenues:
Net premiums $145,151 $141,358
Investment income, net of related expenses 3,392 2,528
Investment related gains, net 34 14
Other revenues 91 101
Total revenues 148,668 144,001
Benefits and expenses:
Claims and other policy benefits 105,646 96,332
Interest credited 190 363
Policy acquisition costs and other
insurance expenses 19,257 27,133
Other operating expenses 8,778 5,660
Total benefits and expenses 133,871 129,488
Income before income taxes $ 14,797 $ 14,513
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Asia Pacific
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2006 2005
Revenues:
Net premiums $139,213 $118,208
Investment income, net of related expenses 6,496 4,740
Investment related gains/(losses), net 15 (47)
Other revenues 1,910 (187)
Total revenues 147,634 122,714
Benefits and expenses:
Claims and other policy benefits 110,356 90,660
Policy acquisition costs and other
insurance expenses 22,005 24,470
Other operating expenses 8,659 4,674
Total benefits and expenses 141,020 119,804
Income before income taxes $ 6,614 $ 2,910
CORPORATE AND OTHER
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2006 2005
Revenues:
Net premiums $ 365 $ 480
Investment income, net of related expenses 9,812 7,199
Investment related gains, net 5,344 894
Other revenues 2,214 2,604
Total revenues 17,735 11,177
Benefits and expenses:
Claims and other policy benefits (846) 836
Interest credited 110 75
Policy acquisition costs and other
insurance expenses (8,179) (5,751)
Other operating expenses 11,861 7,178
Interest expense 16,767 9,885
Total benefits and expenses 19,713 12,223
Income before income taxes $ (1,978) $ (1,046)
SOURCE: Reinsurance Group of America, Incorporated
Reinsurance Group of America, Incorporated
Jack B. Lay, 636-736-7439