Reinsurance Group Of America Reports Increases In First-Quarter Premiums And Earnings
ST. LOUIS, Apr 29, 2004 (BUSINESS WIRE) -- Reinsurance Group of America, Incorporated (NYSE:RGA), one of North America's leading providers of life reinsurance, reported net income for the first quarter of $61.7 million, or $0.98 per diluted share, compared with net income of $32.7 million, or $0.66 per diluted share in the prior-year quarter, a 48 percent increase on a diluted per-share basis. First-quarter net premiums increased 49 percent, to $813.9 million from $545.2 million in 2003. Net realized capital gains totaled $18.4 million on a pre-tax basis versus net realized capital losses of $9.8 million the year before.
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, 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 our underlying businesses. Additionally, operating income excludes any net gain or loss from discontinued operations and the cumulative effect of 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. Reconciliations of GAAP net income to operating income are provided in the tables immediately following the text of this press release.
Operating income for the quarter increased 6 percent on a per-share basis and totaled $52.1 million, or $0.83 per diluted share compared to $38.9 million, or $0.78 per diluted share in the year-ago quarter. A. Greig Woodring, president and chief executive officer, commented, "We are pleased with the rate of growth in operating earnings per share, considering we are comparing to a very strong first quarter in 2003 and we issued an additional 12.1 million common shares late last year. Our results reflect strong premium and earnings growth across all operating segments of our business.
"Pre-tax net income in the U.S. for the quarter totaled $70.2 million compared with $42.6 million in the prior-year quarter, primarily because of much higher net premium levels and net realized capital gains. Pre-tax operating income for the quarter totaled $65.3 million compared with $50.2 million in the prior-year quarter, a 30 percent increase. Segment-wide mortality experience in the current quarter was somewhat higher than the expected level, primarily due to the number of large claims. Our Asset Intensive and Financial Reinsurance business segments posted solid results as well. Net premiums in the U.S. increased $162.5 million, or 44 percent over the prior-year quarter. The transaction with Allianz that we closed in the fourth quarter of 2003 contributed approximately $118.5 million of net premiums to the current quarter. That block performed well and the integration remains on schedule.
"Our Canada operations reported another good quarter, with pre-tax net income of $15.9 million compared with $10.6 million in the prior- year quarter. Pre-tax operating income totaled $14.6 million, up 34 percent from $10.9 million in the prior-year quarter. Mortality experience was slightly favorable. Net premiums increased $11.6 million, or 24 percent for the quarter. Approximately $7.6 million of the increase in net premiums and approximately $1.6 million of the increase in pre-tax operating income was the result of the continued strength of the Canadian dollar.
"Other International operations, which exclude Canada, continued their strong growth, with net premiums increasing 75 percent to $220.7 million in the quarter. Stronger foreign currencies contributed approximately $31.4 million, or 14 percent of the current quarter. Pre-tax net income totaled $13.1 million compared with $3.8 million in the prior-year quarter. Pre-tax operating income for the quarter totaled $9.6 million, a significant increase over the $3.3 million result in the prior-year period. Approximately $1.2 million of that increase was the result of foreign currency strength. Segment-wide mortality experience for the quarter was consistent with expectations. We are pleased with the profit expansion from these operations as reinsurance in force increases; however, we anticipate that results may be more volatile than our more established operations in North America due to the smaller relative size and lack of maturity of this segment's base of business."
During the quarter, the company adopted Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1). The cumulative impact of this new accounting standard was limited to a $361,000 after-tax charge since the company does not provide significant reinsurance support for the product risks covered under SOP 03-1.
Woodring concluded, "We are off to a good start in 2004 across all segments. We continue to see more business opportunities and believe consolidated net premium growth has a good chance of reaching 20 percent for the year, slightly ahead of our previous guidance of 15 to 18 percent. However, premium growth is always difficult to project. Our previous earnings per share guidance range of $3.40 to $3.65 is unchanged as any incremental new premium would not be expected to contribute to the bottom line in a meaningful way until future years."
The company announced that its board of directors declared a regular quarterly dividend of $0.06 per share, payable June 1 to shareholders of record as of May 10.
A conference call to discuss the company's fourth-quarter results will begin at 9 a.m. Eastern Time on Friday, April 30. Interested parties may access the call by dialing 800-210-9006 (domestic) or 719- 457-2621 (international). The access code is 182033. 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 7 at 888-203-1112 (domestic) or 719-457-0820, access code 182033.
Reinsurance Group of America, Incorporated, through its subsidiaries, RGA Reinsurance Company and RGA Life Reinsurance Company of Canada, is among the largest providers of life reinsurance in North America. 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 $1.3 trillion of life reinsurance in force, and assets of $12.7 billion. MetLife, Inc. is the beneficial owner of approximately 52 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) general economic conditions affecting the demand for insurance and reinsurance in our current and planned markets, (4) market or economic conditions that adversely affect our ability to make timely sales of investment securities, (5) changes in investment portfolio yields due to interest rate or credit quality changes, (6) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (7) adverse litigation or arbitration results, (8) the stability of governments and economies in the markets in which we operate, (9) competitive factors and competitors' responses to our initiatives, (10) the success of our clients, (11) successful execution of our entry into new markets, (12) successful development and introduction of new products, (13) our ability to successfully integrate and operate reinsurance business that we acquire, including without limitation, the traditional life reinsurance business of Allianz Life, (14) regulatory action that may be taken by state Departments of Insurance with respect to us, MetLife, or its subsidiaries, (15) changes in laws, regulations, and accounting standards applicable to us, our subsidiaries, or our business, and (16) 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. You are cautioned not to place undue reliance on the forward-looking statements, which 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.
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Reconciliation of Income From Continuing Operations
to Operating Income
(Dollars in thousands, except per share data)
Three Months Ended
March, 31
2004 2003
GAAP net income-continuing operations $62,994 $33,160
Realized investment (gains)/losses (12,684) 6,082
Change in value of embedded derivatives 1,741(1) --
DAC offset for realized investment
(gains)/losses, net 37 (378)
Operating income $52,088 $38,864
(1) Net of DAC offset of $2,730, after tax
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Reconciliation of Pre-tax Net Income From Continuing Operations
to Pre-tax Operating Income
(Dollars in thousands, except per share data)
Three Months Ended March 31, 2004
Realized Change in
Pre-tax investment value of Pre-tax
net (gains)/ embedded operating
income losses, net derivative income
U.S. Operations:
Traditional $64,032 $(7,558) $ -- $ 56,474
Asset Intensive 3,508 (87)(1) 2,678 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)Net of DAC offset $57
Three Months Ended March 31, 2003
Realized
Pre-tax investment Pre-tax
net (gains)/ operating
income losses, net income
U.S. Operations:
Traditional $39,772 $5,244 $ 45,016
Asset Intensive (82) 2,279 (1) 2,197
Financial Reinsurance 2,948 -- 2,948
Total U.S. Operations 42,638 7,523 50,161
Canada Operations 10,627 263 10,890
Asia Pacific Operations 1,368 387 1,755
Europe & South Africa 2,409 (825) 1,584
Other Intl Operations 3,777 (438) 3,339
Corporate & Other (7,189) 1,898 (5,291)
Consolidated $49,853 $ 9,246 $59,099
(1)Net of DAC offset $582
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2004 2003
Revenues:
Net premiums $813,874 $545,215
Investment income, net of
related expenses 133,560 107,145
Realized investment gains/(losses), net 18,416 (9,828)
Change in value of embedded derivatives,
net of DAC offset of $4,200 in 2004 (2,678) --
Other revenues 11,850 11,017
Total revenues 975,022 653,549
Benefits and expenses:
Claims and other policy benefits 647,054 423,605
Interest credited 47,018 40,796
Policy acquisition costs and other
insurance expenses, excluding $4,200
allocated to embedded derivatives
in 2004 143,068 104,581
Other operating expenses 33,529 25,755
Interest expense 9,538 8,959
Total benefits and expenses 880,207 603,696
Pre-tax net income from continuing
operations 94,815 49,853
Provision for income taxes 31,821 16,693
Income from continuing operations 62,994 33,160
Discontinued operations:
Loss from discontinued accident
and health operations, net
of income taxes (894) (418)
Cumulative effect of change in
accounting principle (361) --
Net income $ 61,739 32,742
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,
2004 2003
Earnings per share from continuing
operations:
Basic earnings per share $ 1.01 $ 0.67
Diluted earnings per share $ 1.00 $ 0.67
Diluted earnings before realized
investment gains/(losses), change
in value of embedded derivatives, and
related deferred acquisition costs $ 0.83 $ 0.78
Earnings per share from net income:
Basic earnings per share $ 0.99 $ 0.66
Diluted earnings per share $ 0.98 $ 0.66
Weighted average number of common
and common equivalent shares
outstanding (in thousands) 62,708 49,731
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Business Summary
At or For the
Three Months Ended
(Unaudited) March 31,
2004 2003
Gross life reinsurance in force (in billions)
North American business $1,003.0 $ 627.4
International business 310.5 170.0
Gross life reinsurance written (in billions)
North American business 47.3 28.4
International business 30.5 15.3
Consolidated cash and invested assets
(in millions) 9,607.7 7,197.3
Invested asset book yield - trailing
three months excluding funds withheld 5.83% 6.67%
Investment portfolio mix
Cash and short-term investments 2.88% 1.90%
Fixed maturity securities 50.53% 51.09%
Mortgage loans 5.25% 3.68%
Policy loans 9.40% 11.69%
Funds withheld at interest 29.79% 29.89%
Other invested assets 2.15% 1.75%
Book value per share outstanding $ 33.11 $ 25.18
Book value per share outstanding, before
impact of FAS 115(a) 29.44 23.42
Treasury stock 883,067 1,415,276
(a) Book value per share outstanding, 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
(Dollars in thousands)
(Unaudited) Three Months Ended March 31, 2004
Asset- Financial Total
Traditional Intensive Reinsurance U.S.
Revenues:
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 -- (2,678) -- (2,678)
Other revenues 1,334 1,670 6,380 9,384
Total revenues 594,156 45,785 6,423 646,364
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
Other operating
expenses 11,724 1,159 1,422 14,305
Total benefits and
expenses 530,124 42,277 3,716 576,117
Pre-tax net income $ 64,032 $ 3,508 $ 2,707 $ 70,247
(Unaudited) Three Months Ended March 31, 2003
Asset- Financial Total
Traditional Intensive Reinsurance U.S.
Revenues:
Net premiums $368,807 $ 1,098 $ -- $ 369,905
Investment income,
net of related
expenses 42,701 36,334 -- 79,035
Realized investment
losses, net (5,244) (2,861) -- (8,105)
Other revenues 1,813 1,247 6,911 9,971
Total revenues 408,077 35,818 6,911 450,806
Benefits and expenses:
Claims and other
policy benefits 293,726 1,619 -- 295,345
Interest credited 15,319 25,141 -- 40,460
Policy acquisition
costs and other
insurance expenses 50,805 8,028 2,520 61,353
Other operating
expenses 8,455 1,112 1,443 11,010
Total benefits and
expenses 368,305 35,900 3,963 408,168
Pre-tax net
income/(loss) $ 39,772 $ (82) $ 2,948 $ 42,638
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CANADIAN OPERATIONS
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2004 2003
Revenues:
Net premiums $ 60,148 $ 48,586
Investment income, net of related expenses 23,980 19,766
Realized investment gains/(losses), net 1,309 (263)
Other revenues 38 (65)
Total revenues 85,475 68,024
Benefits and expenses:
Claims and other policy benefits 59,366 49,130
Interest credited 377 289
Policy acquisition costs and other
insurance expenses 7,083 5,593
Other operating expenses 2,729 2,385
Total benefits and expenses 69,555 57,397
Pre-tax net income $ 15,920 $ 10,627
Europe & South Africa
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2004 2003
Revenues:
Net premiums $117,203 $ 83,877
Investment income, net of related expenses 1,544 840
Realized investment gains, net 3,159 825
Other revenues 438 (176)
Total revenues 122,344 85,366
Benefits and expenses:
Claims and other policy benefits 81,997 53,783
Policy acquisition costs and other
insurance expenses 29,031 25,534
Other operating expenses 4,682 3,440
Interest expense 374 200
Total benefits and expenses 116,084 82,957
Pre-tax net income $ 6,260 $ 2,409
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Asia Pacific
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2004 2003
Revenues:
Net premiums $103,539 $ 42,410
Investment income, net of related expenses 3,735 2,727
Realized investment gains/(losses), net 347 (387)
Other revenues 635 200
Total revenues 108,256 44,950
Benefits and expenses:
Claims and other policy benefits 74,845 27,264
Policy acquisition costs and other
insurance expenses 21,530 11,522
Other operating expenses 4,742 4,527
Interest expense 342 269
Total benefits and expenses 101,459 43,582
Pre-tax net income $ 6,797 $ 1,368
CORPORATE AND OTHER
(Dollars in thousands)
Three Months Ended
(Unaudited) March 31,
2004 2003
Revenues:
Net premiums $ 591 $ 437
Investment income, net of related expenses 4,738 4,777
Realized investment gains/(losses), net 5,899 (1,898)
Other revenues 1,355 1,087
Total revenues 12,583 4,403
Benefits and expenses:
Claims and other policy benefits 976 (1,917)
Interest credited 69 47
Policy acquisition costs and other
insurance expenses 54 579
Other operating expenses 7,071 4,393
Interest expense 8,822 8,490
Total benefits and expenses 16,992 11,592
Pre-tax net income $ (4,409) $ (7,189)
SOURCE: Reinsurance Group of America, Incorporated
Reinsurance Group of America, Incorporated Jack B. Lay, 636-736-7439
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