Reinsurance Group of America Reports Second-Quarter Results
- Net income totals $2.10 per diluted share and operating income* $1.79 per diluted share
- Operating income* reaches $130.6 million, up 19 percent over prior-year period
- Mortality experience recovers from adverse first-quarter performance
- Net unrealized securities losses decline 52 percent from first quarter
For the first half of 2009, net income increased to
Quarterly Results | Year-to-date Results | |||||||
($ in thousands, except per share data) | 2009 | 2008 | 2009 | 2008 | ||||
Net premiums | $1,375,181 | $1,358,555 | $2,721,228 | $2,656,620 | ||||
Net income | 153,179 | 110,702 | 176,469 | 142,207 | ||||
Net income per diluted share | 2.10 | 1.73 | 2.42 | 2.22 | ||||
Operating income* | 130,562 | 109,688 | 197,917 | 180,645 | ||||
Operating income per diluted share* | 1.79 | 1.71 | 2.71 | 2.82 | ||||
Book value per share | 42.59 | 49.13 | ||||||
Book value per share (excl. AOCI)* | 45.90 | 45.04 | ||||||
Total assets | 22,649,349 | 22,410,167 | ||||||
* See ‘Use of Non-GAAP Financial Measures’ below |
||||||||
Quarterly and year-to-date earnings per share for 2009 include the
effect of the company’s 10,235,000-share common stock offering in
This quarter’s net income included a pre-tax gain of
The company has posted to its Web site a Quarterly Financial Supplement that includes financial information for all segments as well as information on its investment portfolio. The investment profile remains appropriately positioned, with 95 percent of our fixed maturity securities held in the investment-grade categories.
Capital and Liquidity
The company’s capital and liquidity positions are strong and expected to
remain strong for the foreseeable future. Book value increased
Woodring continued, “We feel we are in good shape with respect to our level of capital and opportunities for capital deployment remain compelling. We continue to evaluate a number of transactions and expect to see block transaction opportunities for some period of time, given ever-changing dynamics in the primary life insurance industry and in the reinsurance competitive landscape. We did not execute any block transactions during the quarter, but we continue to evaluate several opportunities.”
SEGMENT RESULTS
U.S.
The U.S. division reported pre-tax income of
The U.S. Asset Intensive business reported a pre-tax gain of
Canadian operations reported pre-tax net income of
Corporate and Other
The company reported a favorable adjustment associated with an uncertain
tax position of
New Director
The company announced that
Dividend Declaration
The company’s board of directors declared a regular quarterly dividend
of
Earnings Conference Call
A conference call to discuss the company’s second-quarter results will
begin at
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 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 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 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. Reconciliations to GAAP net income are provided in the following tables. Additional financial information can be found in the Quarterly Financial Supplement on RGA’s Investor Relations site 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.
About RGA
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
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 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) regulatory action that may be
taken by state Departments of Insurance with respect to us, (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 of and interest on our debt obligations, and (27) other
risks and uncertainties described in this document and in our other
filings with the
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
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | |||||||||||||||||
Reconciliation of Consolidated Net Income From Continuing Operations to Operating Income | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
(Unaudited) | Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | ||||||||||||||
GAAP net income-continuing operations | $ | 153,179 | $ | 110,806 | $ | 176,469 | $ | 147,395 | |||||||||
Reconciliation to operating income: | |||||||||||||||||
Capital losses, derivatives and other, net included in investment related losses, net | 96,091 | 1,207 | 140,208 | 1,831 | |||||||||||||
Embedded derivatives: | |||||||||||||||||
Included in investment related (gains) losses, net |
(146,624 | ) | 3,962 | (143,236 | ) | 104,595 | |||||||||||
Included in interest credited | (8,301 | ) | (6,011 | ) | (13,582 | ) | 35,905 | ||||||||||
Included in policy acquisition costs and other insurance expenses | 1,136 | 1,554 | 1,984 | (6,305 | ) | ||||||||||||
DAC offset, net | 60,350 | (1,830 | ) | 61,343 | (102,776 | ) | |||||||||||
Gain on debt repurchase | (25,269 | ) | - | (25,269 | ) | - | |||||||||||
Operating income | $ | 130,562 | $ | 109,688 | $ | 197,917 | $ | 180,645 | |||||||||
Reconciliation of Consolidated Pre-tax Net Income From Continuing Operations to Pre-tax Operating Income | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
(Unaudited) | Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | ||||||||||||||||
2009 | 2008 | 2009 | 2008 | ||||||||||||||
Income from continuing operations before income taxes | $ | 215,423 | $ | 170,964 | $ | 249,629 | $ | 227,652 | |||||||||
Reconciliation to pre-tax operating income: | |||||||||||||||||
Capital losses, derivatives and other, net included in investment related losses, net | 148,794 | 1,962 | 217,106 | 2,824 | |||||||||||||
Embedded derivatives: | |||||||||||||||||
Included in investment related (gains) losses, net |
(225,574 | ) | 6,095 | (220,362 | ) | 160,915 | |||||||||||
Included in interest credited | (12,772 | ) | (9,248 | ) | (20,896 | ) | 55,238 | ||||||||||
Included in policy acquisition costs and other insurance expenses | 1,748 | 2,390 | 3,052 | (9,700 | ) | ||||||||||||
DAC offset, net | 92,846 | (2,817 | ) | 94,375 | (158,118 | ) | |||||||||||
Gain on debt repurchase | (38,875 | ) | - | (38,875 | ) | - | |||||||||||
Pre-tax operating income | $ | 181,590 | $ | 169,346 | $ | 284,029 | $ | 278,811 |
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 June 30, 2009 | |||||||||||||||||||||||
Pre-tax net |
Capital |
Change in value of embedded derivatives, net |
Gain on debt repurchase |
Pre-tax operating income |
|||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||
Traditional | $ | 83,287 | $ | 16,934 | $ | - | $ | - | $ | 100,221 | |||||||||||||
Asset Intensive | 19,945 | (9,574 | ) | (1) | 5,614 | (2) | - | 15,985 | |||||||||||||||
Financial Reinsurance | 2,994 | (38 | ) | - | - | 2,956 | |||||||||||||||||
Total U.S. | 106,226 | 7,322 | 5,614 | - | 119,162 | ||||||||||||||||||
Canada Operations | 25,514 | (7,951 | ) | - | - | 17,563 | |||||||||||||||||
Europe & South Africa | 12,363 | 14 | - | - | 12,377 | ||||||||||||||||||
Asia Pacific Operations | 25,520 | (855 | ) | - | - | 24,665 | |||||||||||||||||
Corporate and Other | 45,800 | 898 | - | (38,875 | ) | 7,823 | |||||||||||||||||
Consolidated | $ | 215,423 | $ | (572 | ) | $ | 5,614 | $ | (38,875 | ) | $ | 181,590 | |||||||||||
(1) Asset Intensive is net of $(149,366) DAC offset. | |||||||||||||||||||||||
(2) Asset Intensive is net of $242,212 DAC offset. | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Three Months Ended June 30, 2008 | |||||||||||||||||||||||
Pre-tax net income (loss) |
Capital (gains) losses, derivatives and other, net |
Change in value of embedded derivatives, net |
Pre-tax |
|
|||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||
Traditional | $ | 95,622 | $ | 637 | $ | - |
$ |
96,259 |
|
|
|||||||||||||
Asset Intensive | 9,893 | (3,252 | ) | (1) | 2,621 | (2) |
9,262 |
|
|||||||||||||||
Financial Reinsurance | 3,651 | 2 | - |
3,653 |
|
||||||||||||||||||
Total U.S. | 109,166 | (2,613 | ) | 2,621 |
109,174 |
|
|||||||||||||||||
Canada Operations | 26,778 | (3,026 | ) | - |
23,752 |
|
|||||||||||||||||
Europe & South Africa | 17,041 | 131 | - |
17,172 |
|
||||||||||||||||||
Asia Pacific Operations | 21,256 | 1,510 | - |
22,766 |
|
||||||||||||||||||
Corporate and Other | (3,277 | ) | (241 | ) | - |
(3,518 |
) |
|
|
||||||||||||||
Consolidated | $ | 170,964 | $ | (4,239 | ) | $ | 2,621 |
$ |
169,346 |
|
|
||||||||||||
(1) Asset Intensive is net of $(6,201) DAC offset. | |||||||||||||||||||||||
(2) Asset Intensive is net of $3,384 DAC offset. |
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) | |||||||||||||||||||||||
Six Months Ended June 30, 2009 | |||||||||||||||||||||||
Pre-tax net income (loss) |
Capital (gains) losses, derivatives and other, net |
Change in value of embedded derivatives, net |
Gain on debt repurchase |
Pre-tax operating income |
|||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||
Traditional | $ | 117,637 | $ | 55,162 | $ | - | $ | - | $ | 172,799 | |||||||||||||
Asset Intensive | (7,077 | ) | (25,606 | ) | (1) | 44,927 | (2) | - | 12,244 | ||||||||||||||
Financial Reinsurance | 8,515 | (70 | ) | - | - | 8,445 | |||||||||||||||||
Total U.S. | 119,075 | 29,486 | 44,927 | - | 193,488 | ||||||||||||||||||
Canada Operations | 41,700 | (6,380 | ) | - | - | 35,320 | |||||||||||||||||
Europe & South Africa | 20,898 | (408 | ) | - | - | 20,490 | |||||||||||||||||
Asia Pacific Operations | 29,093 | 2,712 | - | - | 31,805 | ||||||||||||||||||
Corporate and Other | 38,863 | 2,938 | - | (38,875 | ) | 2,926 | |||||||||||||||||
Consolidated | $ | 249,629 | $ | 28,348 | $ | 44,927 | $ | (38,875 | ) | $ | 284,029 | ||||||||||||
(1) Asset Intensive is net of $(188,758) DAC offset. | |||||||||||||||||||||||
(2) Asset Intensive is net of $283,133 DAC offset. | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Six Months Ended June 30, 2008 | |||||||||||||||||||||||
Pre-tax net income (loss) |
Capital (gains) losses, derivatives and other, net |
Change in value of embedded derivatives, net |
Pre-tax |
|
|||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||
Traditional | $ | 150,070 | $ | 3,145 | $ | - |
$ |
153,215 |
|
|
|||||||||||||
Asset Intensive | (31,209 | ) | (1,506 | ) | (1) | 47,524 | (2) |
14,809 |
|
||||||||||||||
Financial Reinsurance | 5,590 | 3 | - |
5,593 |
|
||||||||||||||||||
Total U.S. | 124,451 | 1,642 | 47,524 |
173,617 |
|
||||||||||||||||||
Canada Operations | 50,449 | 1,481 | - |
51,930 |
|
||||||||||||||||||
Europe & South Africa | 23,084 | (614 | ) | - |
22,470 |
|
|||||||||||||||||
Asia Pacific Operations | 39,819 | 996 | - |
40,815 |
|
||||||||||||||||||
Corporate and Other | (10,151 | ) | 130 | - |
(10,021 |
) |
|
|
|||||||||||||||
Consolidated | $ | 227,652 | $ | 3,635 | $ | 47,524 |
$ |
278,811 |
|
|
|||||||||||||
(1) Asset Intensive is net of $811 DAC offset. | |||||||||||||||||||||||
(2) Asset Intensive is net of $(158,929) DAC offset. |
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | |||||||||||||
Per Share and Shares Data | |||||||||||||
(In thousands, except per share data) | |||||||||||||
(Unaudited) | Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | ||||||||||||
2009 | 2008 | 2009 | 2008 | ||||||||||
Earnings per share from continuing operations: | |||||||||||||
Basic earnings per share | $ | 2.11 | $ | 1.78 | $ | 2.43 | $ | 2.37 | |||||
Diluted earnings per share | $ | 2.10 | $ | 1.73 | $ | 2.42 | $ | 2.30 | |||||
Diluted earnings per share from operating income | $ | 1.79 | $ | 1.71 | $ | 2.71 | $ | 2.82 | |||||
Earnings per share from net income: | |||||||||||||
Basic earnings per share | $ | 2.11 | $ | 1.78 | $ | 2.43 | $ | 2.29 | |||||
Diluted earnings per share | $ | 2.10 | $ | 1.73 | $ | 2.42 | $ | 2.22 | |||||
Weighted average number of common and common equivalent shares outstanding |
72,939 | 63,982 | 72,912 | 64,106 | |||||||||
(Unaudited) | At or For the Six Months | ||||||||||||
Ended June 30, | |||||||||||||
2009 | 2008 | ||||||||||||
Treasury shares | 589 | 813 | |||||||||||
Common shares outstanding | 72,775 | 62,316 | |||||||||||
Book value per share outstanding | $ | 42.59 | $ | 49.13 | |||||||||
Book value per share outstanding, before impact of AOCI | $ | 45.90 | $ | 45.04 |
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidated Statements of Income | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||
(Unaudited) | Three Months Ended | Six Months Ended | ||||||||||||||||
June 30, | June 30, | |||||||||||||||||
Revenues: | 2009 | 2008 | 2009 | 2008 | ||||||||||||||
Net premiums | $ | 1,375,181 | $ | 1,358,555 | $ | 2,721,228 | $ | 2,656,620 | ||||||||||
Investment income, net of related expenses | 284,636 | 254,868 | 507,832 | 454,394 | ||||||||||||||
Investment related gains (losses), net: | ||||||||||||||||||
Other-than-temporary impairments on fixed maturity securities | (36,942 | ) | (548 | ) | (71,337 | ) | (5,699 | ) | ||||||||||
Other-than-temporary impairments on fixed maturity securities transferred to other comprehensive income |
16,135 | - | 16,135 | - | ||||||||||||||
Other investment related gains (losses), net | 98,995 | (6,531 | ) | 61,128 | (156,640 | ) | ||||||||||||
Total investment related gains (losses), net | 78,188 | (7,079 | ) | 5,926 | (162,339 | ) | ||||||||||||
Other revenue | 75,161 | 36,262 | 109,020 | 54,198 | ||||||||||||||
Total revenues | 1,813,166 | 1,642,606 | 3,344,006 | 3,002,873 | ||||||||||||||
Benefits and expenses: | ||||||||||||||||||
Claims and other policy benefits | 1,123,696 | 1,128,827 | 2,293,440 | 2,248,339 | ||||||||||||||
Interest credited | 72,897 | 63,000 | 109,806 | 136,897 | ||||||||||||||
Policy acquisition costs and other insurance expenses | 308,403 | 189,272 | 507,204 | 205,534 | ||||||||||||||
Other operating expenses | 71,095 | 61,997 | 137,844 | 125,337 | ||||||||||||||
Interest expense | 19,595 | 21,580 | 41,712 | 44,674 | ||||||||||||||
Collateral finance facility expense | 2,057 | 6,966 | 4,371 | 14,440 | ||||||||||||||
Total benefits and expenses | 1,597,743 | 1,471,642 | 3,094,377 | 2,775,221 | ||||||||||||||
Income before income taxes | 215,423 | 170,964 | 249,629 | 227,652 | ||||||||||||||
Income tax expense | 62,244 | 60,158 | 73,160 | 80,257 | ||||||||||||||
Income from continuing operations | 153,179 | 110,806 | 176,469 | 147,395 | ||||||||||||||
Discontinued operations: | ||||||||||||||||||
Loss from discontinued accident and health operations, net of income taxes |
- | (104 | ) | - | (5,188 | ) | ||||||||||||
Net income | $ | 153,179 | $ | 110,702 | $ | 176,469 | $ | 142,207 |
Source:
Reinsurance Group of America, Incorporated
Jack B. Lay
Senior
Executive Vice President and Chief Financial Officer
636-736-7000