Reinsurance Group of America Reports Increases in Third-Quarter Revenues and Earnings
ST. LOUIS, Oct 23, 2003 (BUSINESS WIRE) -- Reinsurance Group of America, Incorporated (NYSE:RGA), one of North America's leading providers of life reinsurance, reported net income for the third quarter of $41.8 million, or $0.83 per diluted share, compared with net income of $33.6 million, or $0.68 per diluted share in the prior-year quarter, a 22 percent increase on a per-share basis. Third-quarter net premiums increased 26 percent, to $573.0 million from $455.7 million in 2002. Net investment income increased 48 percent, to $122.2 million from $82.5 million in 2002, due primarily to a 34 percent increase in invested assets.
RGA analyzes its results using a non-GAAP financial measure called operating income. Management believes that operating income, on a pre-tax and after-tax basis, better measures the ongoing profitability of the company's continuing operations by excluding from operating income the effect of net realized capital gains and losses and related deferred acquisition costs, which tend to be highly variable, and any net gain or loss from discontinued operations, which management believes are not indicative of ongoing operations. However, the definition of operating income can vary by company and is not considered a substitute in all applications for GAAP net income. Reconciliations of operating income to GAAP net income are provided within the text of this press release.
Operating income increased 7 percent on a per-share basis and totaled $38.0 million, or $0.76 per diluted share. Operating income for the quarter excluded $4.3 million, after tax, in net realized capital gains and related deferred acquisition costs and a $0.5 million after-tax loss associated with the company's discontinued accident and health segment. Operating income in the prior-year quarter totaled $35.2 million, or $0.71 per diluted share, and excluded $0.5 million, after tax, in net realized capital losses and related deferred acquisition costs and a $1.1 million after-tax loss associated with the company's discontinued accident and health segment.
"Our results reflect strong premium growth across all segments of our business; however, mortality experience was mixed," said A. Greig Woodring, president and chief executive officer. "For the quarter, net premiums in the U.S. increased 15 percent to $369.3 million. Mortality experience for the quarter was approximately $6.0 million unfavorable on a pre-tax basis when compared with expectations. This differs from the first two quarters of the year in which we experienced positive mortality variances. As we have advised in the past, mortality experience does fluctuate from quarter to quarter. On a year-to-date basis, U.S. mortality experience remains favorable. The current quarter also reflects a $3.0 million, pretax, reduction in the reserves associated with the terrorist attacks on September 11, 2001.
"Pre-tax net income in the U.S. for the quarter totaled $45.3 million compared with $55.3 million in the prior-year quarter. Pre-tax operating income for the quarter totaled $46.8 million compared with $53.5 million in the prior-year quarter. The prior-year quarter reflects positive mortality experience compared to the less favorable mortality experience in the current quarter. Pre-tax operating income excludes approximately $1.5 million in net realized capital losses and related deferred acquisition costs in the current quarter and $1.8 million in net realized capital gains and related deferred acquisition costs in the prior-period quarter.
"Canada reported a good quarter with pre-tax net income of $19.5 million compared with $8.7 million in the prior-year quarter. Pre-tax operating income totaled $10.9 million for the third quarter compared with $8.5 million in the prior-year quarter. Pre-tax operating income excludes $8.6 million in net realized capital gains in the current period and approximately $200,000 in net realized capital gains in the prior period. The current level of capital gains is a result of repositioning that portfolio to reduce concentrations to certain issuers. Net premiums increased 27 percent. On a year-to-date basis, premiums increased 16 percent. Results for the quarter and year have benefited from an increase in the strength of the Canadian dollar.
"Other International operations, which exclude Canada, continued to grow at a strong pace, with net premiums increasing 58 percent to $149.8 million. We continued to experience steady growth across all our markets in this segment. Pre-tax net income totaled $9.6 million compared with $4.1 million in the prior-year quarter. Pre-tax operating income for the quarter totaled $8.7 million, which excludes $0.9 million in net realized capital gains. This represents a significant increase over prior-period pre-tax operating income of $4.0 million, which excluded less than $100,000 in net realized capital gains. In total, mortality experience for the quarter was consistent with expectations. We expect profits from these operations will continue to expand as the amount of reinsurance in force increases; however, results may continue to be more volatile than our more established operations in North America due to the smaller relative size of this segment's base of business."
For the first nine months of 2003, net income totaled $117.1 million, or $2.34 per diluted share, compared with $89.4 million, or $1.80 per diluted share, in the year-ago period. Operating income, excluding $1.0 million, after tax, in net realized capital gains and related deferred acquisition costs and $1.9 million in after-tax losses associated with discontinued operations, increased to $118.0 million, or $2.36 per diluted share, from $101.4 million, or $2.04 per diluted share, the year before. Prior-year operating income excludes $8.0 million, after tax, in net realized capital losses and related deferred acquisition costs, $3.3 million in after-tax losses associated with discontinued operations and $0.7 million, after tax, of goodwill write-off. Consolidated premiums were up 22 percent, to $1,700.7 million from $1,390.1 million. Woodring concluded, "Revenue growth continued to be strong, and while operating earnings for the quarter were slightly below our expectation, fluctuations in mortality experience from quarter to quarter are an ongoing part of our business. We nevertheless remain slightly ahead of our earnings expectation on a year-to-date basis. Additionally, we believe we are on track to close the previously announced Allianz transaction during the fourth quarter. We expect that transaction to add approximately $5.0 to $8.0 million, after-tax, in earnings to the fourth quarter and $30.0 to $40.0 million, after-tax, in earnings during 2004. We maintain our momentum moving into the fourth quarter and 2004, and look forward to continued opportunities in our chosen markets."
The company announced that its board of directors declared a regular quarterly dividend of $0.06 per share, payable November 26 to shareholders of record as of November 5.
A conference call to discuss the company's third-quarter results will begin at 9 a.m. Eastern Time on Friday, October 24. Interested parties may access the call by dialing 800-262-1292 (domestic) or 719-457-2680 (international). The access code is 432088. 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 October 31 at 888-203-1112 (domestic) or 719-457-0820, access code 432088.
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 North American 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 $893 billion of life reinsurance in force, and assets of $10.5 billion. MetLife, Inc. is the beneficial owner of approximately 59 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 Metropolitan Life Insurance Company ("MetLife"), a 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, 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
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
(Unaudited) September 30, September 30,
2003 2002 2003 2002
Revenues:
Net premiums $572,970 $455,750 $1,700,746 $1,390,113
Investment income, net
of related expenses 122,153 82,499 345,234 260,779
Realized investment
gains/ (losses), net 6,560 1,066 776 (10,951)
Other revenues 10,819 10,839 33,670 27,734
Total revenues 712,502 550,154 2,080,426 1,667,675
Benefits and expenses:
Claims and other policy
benefits 457,844 342,301 1,334,081 1,096,797
Interest credited 46,251 22,156 130,914 79,777
Policy acquisition costs
and other insurance
expenses 111,334 96,303 330,903 252,606
Other operating expenses 24,683 26,358 77,275 67,734
Interest expense 9,383 9,006 27,384 26,475
Total benefits
and expenses 649,495 496,124 1,900,557 1,523,389
Income from continuing
operations before
income taxes 63,007 54,030 179,869 144,286
Provision for
income taxes 20,783 19,307 60,899 51,603
Income from
continuing operations 42,224 34,723 118,970 92,683
Discontinued operations:
Loss from discontinued
accident and health
operations, net of
income taxes (473) (1,135) (1,918) (3,264)
Net income $ 41,751 $ 33,588 $ 117,052 $ 89,419
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
(Unaudited) September 30, September 30,
2003 2002 2003 2002
Earnings per share from
continuing operations:
Basic earnings per share $ 0.85 $ 0.70 $ 2.39 $ 1.88
Diluted earnings per share $ 0.84 $ 0.70 $ 2.38 $ 1.87
Diluted earnings before
realized investment gains/
(losses), related deferred
acquisition costs and goodwill
write-off in 2002 $ 0.76 $ 0.71 $ 2.36 $ 2.04
Earnings per share from net
income:
Basic earnings per share $ 0.84 $ 0.68 $ 2.36 $ 1.81
Diluted earnings per share $ 0.83 $ 0.68 $ 2.34 $ 1.80
Weighted average number of common
and common equivalent shares
outstanding (in thousands) 50,267 49,639 49,943 49,683
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Business Summary
At or For the
Nine Months Ended
(Unaudited) September 30,
2003 2002
Gross life reinsurance in force (in billions)
North American business $ 674.0 $ 584.0
International business 219.0 130.8
Gross life reinsurance written (in billions)
North American business 103.5 110.4
International business 65.7 50.0
Consolidated cash and invested assets
(in millions) 7,925.0 5,934.0
Invested Asset book yield - trailing
three months excluding funds withheld 6.66% 6.59%
Investment portfolio mix
Cash and short-term investments 2.26% 2.28%
Fixed maturity securities 49.13% 56.43%
Mortgage loans 5.48% 3.35%
Policy loans 10.73% 13.14%
Funds withheld at interest 30.68% 22.78%
Other invested assets 1.72% 2.02%
Book value per share outstanding $ 28.92 $ 23.91
Book value per share outstanding, before
impact of FAS 115(a) 25.45 22.09
Treasury stock 1,141,138 1,686,313
(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)
Three Months Ended September 30, 2003
Non-traditional
Asset- Total
Traditional Intensive Financial U.S.
Revenues:
Net premiums $ 368,171 $ 1,093 $ -- $ 369,264
Investment income, net
of related expenses 47,370 44,385 97 91,852
Realized investment
losses, net (1,059) (367) -- (1,426)
Other revenues 489 2,022 6,613 9,124
Total revenues 414,971 47,133 6,710 468,814
Benefits and expenses:
Claims and other
policy benefits 297,654 776 -- 298,430
Interest credited 14,919 30,703 -- 45,622
Policy acquisition
costs and other
insurance expenses 56,738 10,861 2,206 69,805
Other operating
expenses 7,515 891 1,248 9,654
Total benefits
and expenses 376,826 43,231 3,454 423,511
Income before
income taxes $ 38,145 $ 3,902 $ 3,256 $ 45,303
Three Months Ended September 30, 2002
Non-traditional
Asset- Total
Traditional Intensive Financial U.S.
Revenues:
Net premiums $ 319,485 $ 803 $ -- $ 320,288
Investment income, net
of related expenses 43,430 17,495 28 60,953
Realized investment
gains / (losses), net 1,880 (295) -- 1,585
Other revenues 740 2,515 5,940 9,195
Total revenues 365,535 20,518 5,968 392,021
Benefits and expenses:
Claims and other
policy benefits 231,890 9,298 -- 241,188
Interest credited 13,422 6,642 -- 20,064
Policy acquisition
costs and other
insurance expenses 60,265 1,697 1,679 63,641
Other operating
expenses 8,850 358 2,613 11,821
Total benefits
and expenses 314,427 17,995 4,292 336,714
Income before
income taxes $ 51,108 $ 2,523 $ 1,676 $ 55,307
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
U.S. OPERATIONS
(Dollars in thousands)
Nine Months Ended September 30, 2003
Non-traditional
Asset- Total
Traditional Intensive Financial U.S.
Revenues:
Net premiums $1,115,360 $ 3,197 $ -- $1,118,557
Investment income, net
of related expenses 135,246 122,923 97 258,266
Realized investment
losses, net (7,017) (2,080) -- (9,097)
Other revenues 3,186 5,035 20,179 28,400
Total revenues 1,246,775 129,075 20,276 1,396,126
Benefits and expenses:
Claims and other
policy benefits 888,905 4,166 -- 893,071
Interest credited 45,169 84,424 -- 129,593
Policy acquisition
costs and other
insurance expenses 164,257 26,892 7,447 198,596
Other operating
expenses 24,454 2,829 3,881 31,164
Total benefits
and expenses 1,122,785 118,311 11,328 1,252,424
Income before
income taxes $ 123,990 $ 10,764 $ 8,948 $ 143,702
Nine Months Ended September 30, 2002
Non-traditional
Asset- Total
Traditional Intensive Financial U.S.
Revenues:
Net premiums $1,002,741 $ 2,796 $ -- $1,005,537
Investment income, net
of related expenses 120,039 63,943 155 184,137
Realized investment
losses, net (1,151) (4,255) -- (5,406)
Other revenues 1,546 5,684 17,795 25,025
Total revenues 1,123,175 68,168 17,950 1,209,293
Benefits and expenses:
Claims and other
policy benefits 785,756 17,014 -- 802,770
Interest credited 41,517 35,453 -- 76,970
Policy acquisition
costs and other
insurance expenses 153,760 8,126 5,517 167,403
Other operating
expenses 22,145 744 7,005 29,894
Total benefits
and expenses 1,003,178 61,337 12,522 1,077,037
Income before
income taxes $ 119,997 $ 6,831 $ 5,428 $ 132,256
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CANADIAN OPERATIONS
(Dollars in thousands)
Three Months Ended
September 30,
2003 2002
Revenues:
Net premiums $ 53,144 $ 41,894
Investment income, net of related expenses 22,244 18,752
Realized investment gains, net 8,596 164
Other revenues 50 118
Total revenues 84,034 60,928
Benefits and expenses:
Claims and other policy benefits 56,132 46,278
Interest credited 536 345
Policy acquisition costs and other
insurance expenses 5,257 2,880
Other operating expenses 2,580 2,747
Total benefits and expenses 64,505 52,250
Income before income taxes $ 19,529 $ 8,678
Nine Months Ended
September 30,
2003 2002
Revenues:
Net premiums $153,747 $132,571
Investment income, net of related expenses 63,519 52,133
Realized investment gains/(losses), net 12,158 (22)
Other revenues (191) 40
Total revenues 229,233 184,722
Benefits and expenses:
Claims and other policy benefits 161,411 137,104
Interest credited 1,089 733
Policy acquisition costs and other
insurance expenses 15,714 12,142
Other operating expenses 7,434 7,315
Total benefits and expenses 185,648 157,294
Income before income taxes $ 43,585 $ 27,428
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
OTHER INTERNATIONAL
(Dollars in thousands)
Three Months Ended September 30, 2003
Europe Total
Asia & South Inter-
Pacific Africa national
Revenues:
Net premiums $ 57,261 $ 92,502 $149,763
Investment income,
net of related expenses 3,050 1,329 4,379
Realized investment gains
/(losses), net (104) 1,040 936
Other revenues (11) (105) (116)
Total revenues 60,196 94,766 154,962
Benefits and expenses:
Claims and other policy
benefits 41,101 60,435 101,536
Interest credited -- -- --
Policy acquisition costs and
other insurance expenses 8,873 27,293 36,166
Other operating expenses 3,370 3,682 7,052
Interest expense 323 258 581
Total benefits and
expenses 53,667 91,668 145,335
Income before income taxes $ 6,529 $ 3,098 $ 9,627
Three Months Ended September 30, 2002
Europe Total
Asia & South Inter-
Pacific Africa national
Revenues:
Net premiums $32,839 $62,172 $ 95,011
Investment income,
net of related expenses 1,722 343 2,065
Realized investment gains, net 48 8 56
Other revenues 431 440 871
Total revenues 35,040 62,963 98,003
Benefits and expenses:
Claims and other policy
benefits 19,689 37,087 56,776
Interest credited -- -- --
Policy acquisition costs and
other insurance expenses 10,244 20,213 30,457
Other operating expenses 3,809 2,534 6,343
Interest expense 225 148 373
Total benefits and
expenses 33,967 59,982 93,949
Income before income taxes $ 1,073 $ 2,981 $ 4,054
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
OTHER INTERNATIONAL
(Dollars in thousands)
Nine Months Ended September 30, 2003
Europe Total
Asia & South Inter-
Pacific Africa national
Revenues:
Net premiums $165,836 $259,829 $425,665
Investment income,
net of related expenses 8,198 2,808 11,006
Realized investment gains
/(losses), net (622) 1,888 1,266
Other revenues 896 18 914
Total revenues 174,308 264,543 438,851
Benefits and expenses:
Claims and other policy
benefits 115,555 161,668 277,223
Policy acquisition costs and
other insurance expenses 33,401 81,516 114,917
Other operating expenses 12,086 11,228 23,314
Interest expense 842 722 1,564
Total benefits and
expenses 161,884 255,134 417,018
Income before income taxes $12,424 $ 9,409 $ 21,833
Nine Months Ended September 30, 2002
Europe Total
Asia & South Inter-
Pacific Africa national
Revenues:
Net premiums $97,831 $154,327 $252,158
Investment income,
net of related expenses 4,876 591 5,467
Realized investment
losses, net (125) (288) (413)
Other revenues 1,706 776 2,482
Total revenues 104,288 155,406 259,694
Benefits and expenses:
Claims and other policy
benefits 63,849 95,283 159,132
Policy acquisition costs and
other insurance expenses 24,260 48,493 72,753
Other operating expenses 10,086 7,883 17,969
Interest expense 613 499 1,112
Total benefits and
expenses 98,808 152,158 250,966
Income before income taxes $ 5,480 $ 3,248 $ 8,728
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CORPORATE AND OTHER
(Dollars in thousands)
Three Months Ended
September 30,
2003 2002
Revenues:
Net premiums $ 799 $ (1,443)
Investment income, net of related expenses 3,678 729
Realized investment losses, net (1,546) (739)
Other revenues 1,761 655
Total revenues 4,692 (798)
Benefits and expenses:
Claims and other policy benefits 1,746 (1,941)
Interest credited 93 1,747
Policy acquisition costs and other
insurance expenses 106 (675)
Other operating expenses 5,397 5,447
Interest expense 8,802 8,633
Total benefits and expenses 16,144 13,211
Loss before income taxes $(11,452) $(14,009)
Nine Months Ended
September 30,
2003 2002
Revenues:
Net premiums $ 2,777 $ (153)
Investment income, net of related expenses 12,443 19,042
Realized investment losses, net (3,551) (5,110)
Other revenues 4,547 187
Total revenues 16,216 13,966
Benefits and expenses:
Claims and other policy benefits 2,376 (2,209)
Interest credited 232 2,074
Policy acquisition costs and other
insurance expenses 1,676 308
Other operating expenses 15,363 12,556
Interest expense 25,820 25,363
Total benefits and expenses 45,467 38,092
Loss before income taxes $(29,251) $(24,126)
SOURCE: Reinsurance Group of America, Incorporated
Reinsurance Group of America, Incorporated, St. Louis
Jack B. Lay, 636-736-7439