Reinsurance Group of America Reports Second-Quarter Results
-
Company posts approximately
$184 million after-tax charge to increase claims liabilities inAustralia -
Net losses per diluted share: GAAP basis
$0.69 , operating basis*$0.99 -
Net premiums up four percent, exceeding
$2.0 billion - 25 percent increase in dividend
-
Board of directors increases stock repurchase authority from
$300 million to $400 million - 3.7 million shares repurchased to date in 2013
Quarterly Results | Year-to-Date Results | ||||||||||||||||||
($ in thousands, except per share data) | 2013 | 2012 | 2013 | 2012 | |||||||||||||||
Net premiums | $ | 2,035,156 | $ | 1,950,661 | $ | 4,014,849 | $ | 3,814,143 | |||||||||||
Net income (loss) | (49,612 | ) | 141,111 | 135,923 | 264,429 | ||||||||||||||
Net income (loss) per diluted share | (0.69 | ) | 1.91 | 1.85 | 3.57 | ||||||||||||||
Operating income (loss)* | (71,797 | ) | 122,273 | 51,050 | 234,650 | ||||||||||||||
Operating income (loss) per diluted share* |
(0.99 |
) |
1.65 |
0.69 |
3.17 |
||||||||||||||
Book value per share | 82.97 | 84.75 | |||||||||||||||||
Book value per share (excl. Accumulated Other Comprehensive Income “AOCI”)* |
66.31 |
60.34 |
|||||||||||||||||
Total assets | 38,790,621 | 38,344,323 | |||||||||||||||||
* See ‘Use of Non-GAAP Financial Measures’ below |
|||||||||||||||||||
Consolidated net premiums increased four percent to
Excluding spread-based investment income and changes in value of
associated derivatives, the average portfolio yield decreased to
4.77 percent from 5.06 percent in the second quarter of 2012, reflecting
the ongoing low interest rate environment. Although the U.S. dollar
generally appreciated against most currencies compared to the second
quarter of 2012, net foreign currency fluctuations benefited the current
quarter’s operating income by approximately
As a result of the significant charge in
“The largest increase in liabilities relates to the total and permanent
disability coverage, and, to a lesser extent, disability income
benefits. The
“The after-tax charge of approximately
Woodring continued, “The current environment makes it very difficult to price new business with any degree of confidence. We have been quoting very selectively on new group business since mid-2011 and we have not won any material new group business in that period. At this time, we are suspending all quoting activity in the Australian group total and permanent disability market indefinitely and will continue to be extremely selective in other aspects of that group market until it stabilizes and the products become more sustainable.
“Outside of the
“We repurchased additional shares in the second quarter, bringing our
year-to-date total to approximately 3.7 million shares at a cost of
“We recently announced that our primary operating subsidiary,
SEGMENT RESULTS
U.S.
The U.S. Traditional sub-segment reported pre-tax net income of
The U.S. Asset-Intensive business reported pre-tax income of
The U.S. Financial Reinsurance business added pre-tax operating income
of
Canadian operations reported pre-tax net income of
The
Outside of
Corporate and Other
The Corporate and Other segment reported a pre-tax net loss of
Stock Repurchase Authorization
The board of directors authorized an additional increase of
Repurchases would be made in accordance with applicable securities laws and would be made through market transactions, block trades, privately negotiated transactions or other means or a combination of these methods, with the timing and number of shares repurchased dependent on a variety of factors, including share price, corporate and regulatory requirements and market and business conditions. Repurchases may be commenced or suspended from time to time without prior notice.
Dividend Declaration
The board of directors increased the quarterly dividend 25 percent, to
Earnings Conference Call
A conference call to discuss second-quarter results will begin at
The company has posted to its website a Quarterly Financial Supplement that includes financial information for all segments as well as information on its investment portfolio. Additionally, the company posts periodic reports, press releases and other useful information on its investor relations website.
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 substantially all of 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, the cumulative effect of any accounting changes, and other items that 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 website 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.
Operating return on equity is a non-GAAP financial measure calculated as operating income divided by average shareholders’ equity excluding AOCI.
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, including ongoing uncertainties regarding
the amount of
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 to Operating Income | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
(Unaudited) | Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | ||||||||||||||||
2013 |
2012 |
2013 |
2012 |
||||||||||||||
GAAP net income (loss) | $ |
(49,612 |
) | $ | 141,111 | $ |
135,923 |
$ | 264,429 | ||||||||
Reconciliation to operating income (loss): | |||||||||||||||||
Capital (gains) losses, derivatives and other, included in investment related (gains) losses, net |
23,726 | (66,949 | ) | 55,160 | (6,645 | ) | |||||||||||
Capital (gains) losses on funds withheld: | |||||||||||||||||
Included in investment income | (7,625 | ) | (3,460 | ) | (8,946 | ) | (2,784 | ) | |||||||||
Included in policy acquisition costs and other insurance expenses | - | 99 | - | 235 | |||||||||||||
Embedded derivatives: | |||||||||||||||||
Included in investment related (gains) losses, net | (54,291 | ) | 51,599 | (146,313 | ) | (37,417 | ) | ||||||||||
Included in interest credited | (20,905 | ) | (1,095 | ) | (33,457 | ) | 24,410 | ||||||||||
DAC offset, net | 36,910 | 968 | 78,912 | (7,578 | ) | ||||||||||||
Gain on repurchase of collateral finance facility securities | - | - | (30,229 | ) | - | ||||||||||||
Operating income (loss) | $ |
(71,797 |
) | $ | 122,273 | $ |
51,050 |
$ | 234,650 | ||||||||
Reconciliation of Consolidated Pre-tax Net Income to Pre-tax Operating Income | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
(Unaudited) | Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | ||||||||||||||||
2013 |
2012 |
2013 |
2012 |
||||||||||||||
Income (loss) before income taxes | $ |
(74,758 |
) | $ | 215,892 | $ |
204,069 |
$ | 396,655 | ||||||||
Reconciliation to pre-tax operating income (loss): | |||||||||||||||||
Capital (gains) losses, derivatives and other, included in investment related (gains) losses, net |
37,057 | (102,184 | ) | 85,899 | (8,086 | ) | |||||||||||
Capital (gains) losses on funds withheld: | |||||||||||||||||
Included in investment income | (11,733 | ) | (5,323 | ) | (13,764 | ) | (4,283 | ) | |||||||||
Included in policy acquisition costs and other insurance expenses | - | 152 | - | 361 | |||||||||||||
Embedded derivatives: | |||||||||||||||||
Included in investment related (gains) losses, net | (83,525 | ) | 79,382 | (225,097 | ) | (57,565 | ) | ||||||||||
Included in interest credited | (32,161 | ) | (1,685 | ) | (51,472 | ) | 37,554 | ||||||||||
DAC offset, net | 56,786 | 1,490 | 121,404 | (11,658 | ) | ||||||||||||
Gain on repurchase of collateral finance facility securities | - | - | (46,506 | ) | - | ||||||||||||
Pre-tax operating income (loss) | $ |
(108,334 |
) | $ | 187,724 |
$ |
74,533 |
$ | 352,978 |
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | |||||||||||||||||||
Reconciliation of Pre-tax Net Income to Pre-tax Operating Income | |||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
|
Three Months Ended June 30, 2013 |
||||||||||||||||||
Capital | Change in | ||||||||||||||||||
(gains) losses, | value of | Pre-tax | |||||||||||||||||
Pre-tax net | derivatives | embedded | operating | ||||||||||||||||
income (loss) |
and other, net |
derivatives, net |
income (loss) |
||||||||||||||||
U.S. Operations: | |||||||||||||||||||
Traditional | $ | 89,447 | $ | (2,309 | ) | $ | (1,391 | ) | $ | 85,747 | |||||||||
Asset Intensive | 69,209 | 48,499 | (1 | ) | (77,478 | ) | (2 | ) | 40,230 | ||||||||||
Financial Reinsurance | 11,787 | 100 | - | 11,887 | |||||||||||||||
Total U.S. | 170,443 | 46,290 | (78,869 | ) | 137,864 | ||||||||||||||
Canada Operations | 35,659 | (3,970 | ) | - | 31,689 | ||||||||||||||
Europe & South Africa | 15,818 | (470 | ) | - | 15,348 | ||||||||||||||
Asia Pacific Operations |
(290,448 |
) | 4,726 | - |
(285,722 |
) | |||||||||||||
Corporate and Other | (6,230 | ) | (1,283 | ) | - | (7,513 | ) | ||||||||||||
Consolidated | $ |
(74,758 |
) | $ | 45,293 | $ | (78,869 | ) | $ |
(108,334 |
) | ||||||||
(1) Asset Intensive is net of $19,969 DAC offset. | |||||||||||||||||||
(2) Asset Intensive is net of $36,817 DAC offset. | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
|
Three Months Ended June 30, 2012 |
||||||||||||||||||
Capital | Change in | ||||||||||||||||||
(gains) losses, | value of | Pre-tax | |||||||||||||||||
Pre-tax net | derivatives | embedded | operating | ||||||||||||||||
income (loss) |
and other, net |
derivatives, net |
income (loss) |
||||||||||||||||
U.S. Operations: | |||||||||||||||||||
Traditional | $ | 96,336 | $ | (649 | ) | $ | (140 | ) | $ | 95,547 | |||||||||
Asset Intensive | 34,602 | (48,776 | ) | (1 | ) | 30,817 | (2 | ) | 16,643 | ||||||||||
Financial Reinsurance | 9,648 | (32 | ) | - | 9,616 | ||||||||||||||
Total U.S. | 140,586 | (49,457 | ) | 30,677 | 121,806 | ||||||||||||||
Canada Operations | 35,030 | (4,523 | ) | - | 30,507 | ||||||||||||||
Europe & South Africa | 19,591 | (1,156 | ) | - | 18,435 | ||||||||||||||
Asia Pacific Operations | 23,859 | (1,132 | ) | - | 22,727 | ||||||||||||||
Corporate and Other | (3,174 | ) | (2,577 | ) | - | (5,751 | ) | ||||||||||||
Consolidated | $ | 215,892 | $ | (58,845 | ) | $ | 30,677 | $ | 187,724 | ||||||||||
(1) Asset Intensive is net of $48,510 DAC offset. | |||||||||||||||||||
(2) Asset Intensive is net of $(47,020) DAC offset. |
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | |||||||||||||||||||||||||
Reconciliation of Pre-tax Net Income to Pre-tax Operating Income | |||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
|
Six Months Ended June 30, 2013 |
||||||||||||||||||||||||
|
|||||||||||||||||||||||||
Capital | Change in | ||||||||||||||||||||||||
(gains) losses, | value of | Pre-tax | |||||||||||||||||||||||
Pre-tax net | derivatives | embedded | Gain on debt | operating | |||||||||||||||||||||
income (loss) |
and other, net |
derivatives, net |
repurchase |
income (loss) |
|||||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||||
Traditional | $ | 166,292 | $ | (9,550 | ) | $ | (1,447 | ) | $ | - | $ | 155,295 | |||||||||||||
Asset Intensive | 158,732 | 63,387 | (1 | ) | (136,293 | ) | (2 | ) | - | 85,826 | |||||||||||||||
Financial Reinsurance | 19,828 | 66 | - | - | 19,894 | ||||||||||||||||||||
Total U.S. | 344,852 | 53,903 | (137,740 | ) | - | 261,015 | |||||||||||||||||||
Canada Operations | 71,967 | (7,401 | ) | - | - | 64,566 | |||||||||||||||||||
Europe & South Africa | 33,203 | (2,280 | ) | - | - | 30,923 | |||||||||||||||||||
Asia Pacific Operations |
(275,930 |
) | 9,573 | - | - |
(266,357 |
) | ||||||||||||||||||
Corporate and Other | 29,977 | 915 | - | (46,506 | ) | (15,614 | ) | ||||||||||||||||||
Consolidated | $ |
204,069 |
$ | 54,710 | $ | (137,740 | ) | $ | (46,506 | ) | $ |
74,533 |
|||||||||||||
(1) Asset Intensive is net of $(17,425) DAC offset. |
|||||||||||||||||||||||||
(2) Asset Intensive is net of $138,829 DAC offset. | |||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
|
Six Months Ended June 30, 2012 |
||||||||||||||||||||||||
Capital | Change in | ||||||||||||||||||||||||
(gains) losses, | value of | Pre-tax | |||||||||||||||||||||||
Pre-tax net | derivatives | embedded | operating | ||||||||||||||||||||||
income (loss) |
and other, net |
derivatives, net |
income (loss) |
||||||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||||
Traditional | $ | 146,178 | $ | 12,394 | $ | (99 | ) | $ | 158,473 | ||||||||||||||||
Asset Intensive | 71,192 | (32,830 | ) | (1 | ) | 2,762 | (2 | ) | 41,124 | ||||||||||||||||
Financial Reinsurance | 15,961 | 107 | - | 16,068 | |||||||||||||||||||||
Total U.S. | 233,331 | (20,329 | ) | 2,663 | 215,665 | ||||||||||||||||||||
Canada Operations | 90,093 | (12,927 | ) | - | 77,166 | ||||||||||||||||||||
Europe & South Africa | 26,197 | (3,138 | ) | - | 23,059 | ||||||||||||||||||||
Asia Pacific Operations | 55,926 | (6,290 | ) | - | 49,636 | ||||||||||||||||||||
Corporate and Other | (8,892 | ) | (3,656 | ) | - | (12,548 | ) | ||||||||||||||||||
Consolidated | $ | 396,655 | $ | (46,340 | ) | $ | 2,663 | $ | 352,978 | ||||||||||||||||
(1) Asset Intensive is net of $(34,332) DAC offset. | |||||||||||||||||||||||||
(2) Asset Intensive is net of $22,674 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, | |||||||||||||
2013 |
2012 |
2013 |
2012 |
|||||||||||
Diluted earnings per share from operating income (loss) | $ |
(0.99 |
) | $ | 1.65 | $ |
0.69 |
$ | 3.17 | |||||
Earnings per share from net income (loss): | ||||||||||||||
Basic earnings per share | $ |
(0.69 |
) | $ | 1.91 | $ |
1.86 |
$ | 3.59 | |||||
Diluted earnings per share (1) |
$ |
(0.69 |
) | $ | 1.91 | $ |
1.85 |
$ | 3.57 | |||||
Weighted average number of common and common equivalent shares outstanding |
||||||||||||||
72,769 | 74,054 | 73,573 | 74,048 | |||||||||||
(Unaudited) | At or For the Six Months | |||||||||||||
Ended June 30, | ||||||||||||||
2013 |
2012 |
|||||||||||||
Treasury shares | 8,170 | 5,416 | ||||||||||||
Common shares outstanding | 70,968 | 73,722 | ||||||||||||
Book value per share outstanding | $ |
82.97 |
$ | 84.75 | ||||||||||
Book value per share outstanding, before impact of AOCI | $ |
66.31 |
$ | 60.34 | ||||||||||
(1) As a result of anti-dilutive impact, in periods of a loss, weighted average common shares outstanding (basic) are used in the calculation of diluted earnings per share. |
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: |
2013 |
2012 |
2013 |
2012 |
||||||||||||||
Net premiums | $ | 2,035,156 | $ | 1,950,661 | $ | 4,014,849 | $ | 3,814,143 | ||||||||||
Investment income, net of related expenses | 444,234 | 328,334 | 869,365 | 669,274 | ||||||||||||||
Investment related gains (losses), net: | ||||||||||||||||||
Other-than-temporary impairments on fixed maturity securities | (9,803 | ) | (1,959 | ) | (10,005 | ) | (9,566 | ) | ||||||||||
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income |
||||||||||||||||||
(306 | ) | 162 | (306 | ) | (7,059 | ) | ||||||||||||
Other investment related gains (losses), net | 58,352 | 25,598 | 152,925 | 83,946 | ||||||||||||||
Total investment related gains (losses), net |
48,243 | 23,801 | 142,614 | 67,321 | ||||||||||||||
Other revenue | 63,009 | 72,957 | 164,916 | 117,990 | ||||||||||||||
Total revenues | 2,590,642 | 2,375,753 | 5,191,744 | 4,668,728 | ||||||||||||||
Benefits and expenses: | ||||||||||||||||||
Claims and other policy benefits |
2,030,574 |
1,625,446 |
3,719,484 |
3,205,595 | ||||||||||||||
Interest credited | 118,345 | 66,697 | 243,828 | 154,739 | ||||||||||||||
Policy acquisition costs and other insurance expenses | 370,505 | 335,939 | 727,862 | 643,573 | ||||||||||||||
Other operating expenses | 113,408 | 105,541 | 232,909 | 215,639 | ||||||||||||||
Interest expense | 29,918 | 23,360 | 58,404 | 46,682 | ||||||||||||||
Collateral finance facility expense | 2,650 | 2,878 | 5,188 | 5,845 | ||||||||||||||
Total benefits and expenses |
2,665,400 |
2,159,861 |
4,987,675 |
4,272,073 | ||||||||||||||
Income before income taxes |
(74,758 |
) | 215,892 |
204,069 |
396,655 | |||||||||||||
Income tax expense |
(25,146 |
) | 74,781 |
68,146 |
132,226 | |||||||||||||
Net income (loss) | $ |
(49,612 |
) | $ | 141,111 | $ |
135,923 |
$ | 264,429 |
Source:
Reinsurance Group of America, Incorporated
John W. Hayden,
636-736-7000
Senior Vice President – Controller and Investor
Relations