UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11848
REINSURANCE GROUP OF AMERICA, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-1627032
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1370 TIMBERLAKE MANOR PARKWAY
CHESTERFIELD, MISSOURI 63017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(636) 736-7439 (REGISTRANT'S
TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES [X] NO [ ]
COMMON STOCK OUTSTANDING ($.01 PAR VALUE) AS OF JULY 31, 2004: 62,324,740 SHARES
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I - FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 2004 and December 31, 2003 3
Condensed Consolidated Statements of Income (Unaudited)
Three and six months ended June 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2004 and 2003 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6-10
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-26
3 Quantitative and Qualitative Disclosures About Market Risk 26
4 Controls and Procedures 26
PART II - OTHER INFORMATION
1 Legal Proceedings 27
2 Unregistered Sales of Equity Securities and Use of Proceeds 27
4 Submission of Matters to a Vote of Security Holders 27
6 Exhibits and Reports on Form 8-K 28
Signatures 29
Index to Exhibits 30
2
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2004 2003
------------- --------------
(Dollars in thousands)
ASSETS
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $4,538,843 and
$4,298,597 at June 30, 2004 and December 31, 2003, respectively) $ 4,666,875 $ 4,575,735
Mortgage loans on real estate 541,447 479,312
Policy loans 901,098 902,857
Funds withheld at interest 3,023,702 2,717,278
Short-term investments 7,529 28,917
Other invested assets 234,905 179,320
------------ -------------
Total investments 9,375,556 8,883,419
Cash and cash equivalents 127,316 84,586
Accrued investment income 72,274 47,961
Premiums receivable 324,534 412,413
Reinsuranceceded receivables 382,497 463,557
Deferred policy acquisition costs 1,954,256 1,757,096
Other reinsurance balances 191,358 387,108
Other assets 81,187 77,234
------------ -------------
Total assets $ 12,508,978 $ 12,113,374
============ =============
LIABILITIES AND STOCK HOLDERS' EQUITY
Future policy benefits $ 3,601,357 $ 3,550,156
Interest sensitive contract liabilities 4,514,911 4,170,591
Other policy claims and benefits 1,192,997 1,091,038
Other reinsurance balances 185,880 267,706
Deferred income taxes 428,636 438,973
Other liabilities 70,204 90,749
Short-term debt 27,304 -
Long-term debt 374,101 398,146
Company-obligated mandatorily redee mable preferred securities of subsidiary
trust holding solely junior subordinated debentures of the Company 158,353 158,292
------------ -------------
Total liabilities 10,553,743 10,165,651
Commitments and contingent liabilities - -
Stockholders' Equity:
Preferred stock (par value $.01 per share; 10,000,000 shares authorized; no
shares issued or outstanding) - -
Common stock (par value $.01 per share; 140,000,000 and 75,000,000
shares authorized, respectively; 63,128,273 shares issued at
June 30, 2004 and December 31, 2003) 631 631
Warrants 66,915 66,915
Additional paid-in-capital 1,044,228 1,042,444
Retained earnings 761,110 641,502
Accumulated other comprehensive income:
Accumulated currency translation adjustment, net of income taxes 30,825 53,601
Unrealized appreciation of securities, net of income taxes 75,158 170,658
------------ -------------
Total stockholders' equity before treasury stock 1,978,867 1,975,751
Less treasury shares held of 818,833 and 967,927 at cost at
June 30, 2004 and December 31, 2003, respectively (23,632) (28,028)
------------ -------------
Total stockholders' equity 1,955,235 1,947,723
------------ -------------
Total liabilities and stockholders' equity $ 12,508,978 $ 12,113,374
============ =============
See accompanying notes to condensed consolidated financial
statements (unaudited).
3
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended June 30, Six months ended June 30,
---------------------------- --------------------------
2004 2003 2004 2003
-------------- ----------- ----------- ------------
(Dollars in thousands, except per share data)
REVENUES:
Net premiums $ 797,308 $ 582,561 $ 1,611,182 $ 1,127,776
Investment income, net of related expenses 134,185 115,936 267,745 223,081
Realized investment gains (losses), net 12,691 4,044 31,107 (5,784)
Change in value of embedded derivatives 17,472 - 18,994 -
Other revenues 14,759 11,834 26,609 22,851
-------------- ----------- ----------- ------------
Total revenues 976,415 714,375 1,955,637 1,367,924
BENEFITS AND EXPENSES:
Claims and other policy benefits 634,802 452,632 1,281,856 876,237
Interest credited 44,332 43,867 91,350 84,663
Policy acquisition costs and other insurance expenses 134,157 114,988 277,225 219,569
Change in deferred acquisition costs associated with
change in value of embedded derivatives 13,293 - 17,493 -
Other operating expenses 34,896 26,837 68,425 52,592
Interest expense 9,542 9,042 19,080 18,001
-------------- ----------- ----------- ------------
Total benefits and expenses 871,022 647,366 1,755,429 1,251,062
Income from continuing operations before
income taxes 105,393 67,009 200,208 116,862
Provision for income taxes 37,003 23,423 68,824 40,116
-------------- ----------- ----------- ------------
Income from continuing operations 68,390 43,586 131,384 76,746
Discontinued operations:
Loss from discontinued accident and health
operations, net of income taxes (3,053) (1,027) (3,947) (1,445)
-------------- ----------- ----------- ------------
Income before cumulative effect of change in
accounting principle 65,337 42,559 127,437 75,301
Cumulative effect of change in accounting principle,
net of income taxes - - (361) -
-------------- ----------- ----------- ------------
Net income $ 65,337 $ 42,559 $ 127,076 $ 75,301
============== =========== =========== ============
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 1.10 $ 0.88 $ 2.11 $ 1.55
Discontinued operations (0.05) (0.02) (0.06) (0.03)
Cumulative effect of change in accounting principal - - (0.01) -
-------------- ----------- ----------- ------------
Net income $ 1.05 $ 0.86 $ 2.04 $ 1.52
============== =========== =========== ============
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 1.09 $ 0.87 $ 2.09 $ 1.54
Discontinued operations (0.05) (0.02) (0.06) (0.03)
Cumulative effect of change in accounting principal - - - -
-------------- ----------- ----------- ------------
Net income $ 1.04 $ 0.85 $ 2.03 $ 1.51
============== =========== =========== ============
DIVIDENDS DECLARED PER SHARE $ 0.06 $ 0.06 $ 0.12 $ 0.12
============== =========== =========== ============
See accompanying notes to condensed consolidated financial
statements (unaudited).
4
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
June 30,
-----------------------------
2004 2003
------------- -------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 127,076 $ 75,301
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in:
Accrued investment income (24,484) (30,692)
Premiums receivable 90,216 (73,708)
Deferred policy acquisition costs (190,057) (152,201)
Reinsuranceceded balances 81,060 42,420
Future policy benefits, other policy claims and benefits, and
other reinsurance balances 297,197 274,103
Deferred income taxes 55,396 36,430
Other assets and other liabilities, net (24,604) 29,585
Amortization of net investment discounts and other (17,153) (20,929)
Realized investment (gains) losses, net (31,107) 5,784
Other, net (11,448) (14,056)
------------- -------------
Net cash provided by operating activities 352,092 172,037
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of fixed maturity securities-available for sale 668,201 983,370
Maturities of fixed maturity securities - available for sale 10,749 17,022
Purchases of fixed maturity securities - available for sale (919,319) (1,111,533)
Sales of mortgage loans 13,927 -
Cash invested in mortgage loans of real estate (86,072) (139,204)
Cash invested in policy loans (2,381) (1,812)
Cash invested in funds withheld at interest (24,549) (35,888)
Principal payments on mortgage loans on real estate 12,041 6,607
Principal payments on policy loans 4,140 -
Change in short-term investments and other invested assets (43,155) (30,820)
------------- -------------
Net cash used in investing activities (366,418) (312,258)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (7,468) (5,951)
Borrowings under credit agreements 4,600 46,618
Exercise of stock options 6,181 5,550
Excess deposits on universal life and other
investment type policies and contracts 54,263 160,229
------------- -------------
Net cash provided by financing activities 57,576 206,446
Effect of ex change rate changes (520) 3,956
------------- -------------
Change in cash and cash equivalents 42,730 70,181
Cash and cash equivalents, beginning of period 84,586 88,101
------------- -------------
Cash and cash equivalents, end of period $ 127,316 $ 158,282
============= =============
Supplementary disclosure of cash flow information:
Interest paid $ 18,915 $ 14,468
Income taxes paid $ 24,686 $ 4,177
See accompanying notes to condensed consolidated financial
statements (unaudited).
5
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Reinsurance Group of America, Incorporated ("RGA") and its subsidiaries
(collectively, the "Company") have been prepared in conformity with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for the
six-month period ended June 30, 2004 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2004. These
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 2003 Annual Report on Form 10-K ("2003 Annual Report")
filed with the Securities and Exchange Commission on March 12, 2004.
The accompanying unaudited condensed consolidated financial statements include
the accounts of Reinsurance Group of America, Incorporated and its subsidiaries.
All material intercompany accounts and transactions have been eliminated. The
Company has reclassified the presentation of certain prior-period information to
conform to the 2004 presentation.
Prior to January 1, 2003, the Company applied Accounting Principles Board
("APB") Opinion No. 25 in accounting for its stock plans and, accordingly, no
compensation cost was recognized for its stock options in the financial
statements. For issuances under employee stock plans after January 1, 2003, the
Company follows the provisions of Statement of Financial Accounting Standards
("SFAS") No. 123 when recording its compensation expense. Had the Company
determined compensation cost based on the fair value at the grant date for all
stock option grants under SFAS No. 123, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below. The
effects of applying SFAS No. 123 may not be representative of the effects on
reported net income for future years.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(in thousands) 2004 2003 2004 2003
----------------------------------------
Net income as reported $65,337 $42,559 $127,076 $75,301
Add compensation expense included in net
income, net of income taxes 653 272 1,188 543
Deduct total fair value of compensation
expense for all awards, net of income taxes (1,115) (942) (2,271) (1,895)
------- ------- -------- -------
Pro forma net income $64,875 $41,889 $125,993 $73,949
Net income per share:
As reported - basic $ 1.05 $ 0.86 $ 2.04 $ 1.52
Pro forma - basic $ 1.04 $ 0.84 $ 2.02 $ 1.49
As reported - diluted $ 1.04 $ 0.85 $ 2.03 $ 1.51
Pro forma - diluted $ 1.03 $ 0.84 $ 2.01 $ 1.48
------- ------- -------- -------
6
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share on income from continuing operations (in thousands except per share
information):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
----------------------------------------
Earnings:
Income from continuing operations (numerator
for basic and diluted calculations)
$ 68,390 $43,586 $131,384 $76,746
Shares:
Weighted average outstanding shares
(denominator for basic calculation) 62,275 49,741 62,243 49,646
Equivalent shares from outstanding stock
options 480 222 480 188
-------- ------- -------- -------
Denominator for diluted calculation 62,755 49,963 62,723 49,834
Earnings per share:
Basic $ 1.10 $ 0.88 $ 2.11 $ 1.55
Diluted $ 1.09 $ 0.87 $ 2.09 $ 1.54
======== ======= ======== =======
The calculation of equivalent shares from outstanding stock options does not
include the impact of options having a strike price that exceeds the average
stock price for the earnings period, as the result would be antidilutive. The
calculation of equivalent shares also excludes the impact of outstanding
performance contingent shares as the conditions necessary for their issuance
have not been satisfied as of the end of the reporting period. For the three-
and six-month periods ended June 30, 2004, all outstanding stock options were
included in the calculation of common equivalent shares, while approximately 0.1
million performance contingent shares were excluded from the calculation. For
the three and six month periods ended June 30, 2003, approximately 1.4 million
of antidilutive outstanding stock options were not included in the calculation
of common equivalent shares. Diluted earnings per share exclude the antidilutive
effect of 5.6 million shares that would be issued upon exercise of outstanding
warrants to purchase Company common stock, as the Company could repurchase more
shares than it could issue with the exercise proceeds. The warrants become
dilutive once the Company's average stock price during a reporting period
exceeds $39.98 per share.
3. COMPREHENSIVE INCOME
The following schedule reflects the change in accumulated other comprehensive
income (loss) for the three- and six-month periods ended June 30, 2004 and 2003
(dollars in thousands):
---------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2004 JUNE 30, 2003
---------------------------------------------------------------
Net income $ 65,337 $ 42,559 $ 127,076 $ 75,301
Accumulated other comprehensive
income (expense), net of income tax:
Unrealized gains (losses), net of
reclassification adjustment for
gains (losses) included in net income (152,965) 121,683 (95,500) 105,939
Foreign currency items (17,287) 26,173 (22,776) 35,874
--------- --------- --------- ---------
Comprehensive income (loss) $(104,915) $ 190,415 $ 8,800 $ 217,114
========= ========= ========= =========
7
4. SEGMENT INFORMATION
The accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies in Note 2 of the 2003 Annual Report.
The Company measures segment performance primarily based on profit or loss from
operations before income taxes. There are no intersegment reinsurance
transactions and the Company does not have any material long-lived assets.
Investment income is allocated to the segments based upon average assets and
related capital levels deemed appropriate to support the segment business
volumes.
Information related to total revenues and income (loss) from continuing
operations before income taxes for each reportable segment are summarized below
(dollars in thousands).
---------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2004 JUNE 30, 2003
---------------------------------------------------------------
REVENUES
U.S $ 662,969 $ 476,506 $ 1,313,533 $ 927,312
Canada 92,167 77,175 177,642 145,199
Europe & South Africa 121,337 84,411 243,681 169,777
Asia Pacific 90,008 69,162 198,264 114,112
Corporate & Other 9,934 7,121 22,517 11,524
----------- --------- ----------- -----------
Total $ 976,415 $ 714,375 $ 1,955,637 $ 1,367,924
=========== ========= =========== ===========
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
U.S $ 75,810 $ 55,761 $ 146,057 $ 98,399
Canada 21,211 13,429 37,131 24,056
Europe & South Africa 11,829 3,902 18,089 6,311
Asia Pacific 4,694 4,527 11,491 5,895
Corporate & Other (8,151) (10,610) (12,560) (17,799)
----------- --------- ----------- -----------
Total $ 105,393 $ 67,009 $ 200,208 $ 116,862
=========== ========= =========== ===========
Europe & South Africa and Asia Pacific assets increased approximately $100.9
million, or 20.9%, and $119.8 million, or 29.0%, respectively, from the amounts
disclosed in Note 17 of the 2003 Annual Report, primarily due to the continued
growth in these segments.
5. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is currently a party to various litigation and arbitrations that
involve medical reinsurance arrangements, personal accident business, and
aviation bodily injury carve-out business. As of June 30, 2004, the ceding
companies involved in these disputes have raised claims, or established reserves
that may result in claims, that are $91.6 million in excess of the amounts held
in reserve by the Company. The Company generally has little information
regarding any reserves established by the ceding companies, and it is possible
that any such reserves could be increased in the future. The Company believes it
has substantial defenses upon which to contest these claims, including but not
limited to misrepresentation and breach of contract by direct and indirect
ceding companies. In addition, the Company is in the process of auditing ceding
companies that have indicated that they anticipate asserting claims in the
future against the Company that are $16.6 million in excess of the amounts held
in reserve by the Company. Depending upon the audit findings in these cases,
they could result in litigation or arbitrations in the future. See Note 21,
"Discontinued Operations," in the Company's 2003 Annual Report for more
information. Additionally, from time to time, the Company is subject to
litigation and arbitration related to its life reinsurance business and to
employment-related matters in the normal course of its business. While it is not
feasible to predict or determine the ultimate outcome of the pending litigation
or arbitrations or provide reasonable ranges of potential losses, it is the
opinion of management, after consultation with counsel, that their outcomes,
after consideration of the provisions made in the Company's consolidated
financial statements, would not have a material adverse effect on its
consolidated financial position.
8
As discussed in the Company's 2003 Annual Report, certain regulations were
pending relating to permanently disabled participants of the privatized pension
plans administered by Administradoras de Fondos de Jubilaciones y Pensiones
("AFJPs"). Recently, the Argentine government enacted those regulations. The new
regulations require permanently disabled AFJP plan participants to elect a
programmed withdrawal or an annuity with respect to deferred disability claims
at a time when the AFJP fund unit values are significantly inflated. The new
regulations are expected to accelerate permanent disability payments from
reinsurers; particularly with respect to plan participants that elect programmed
withdrawal. The Company cannot predict the percentage of plan participants that
will elect programmed withdrawal as opposed to an annuity. Also, as discussed in
the Company's 2003 Annual Report, the Company had placed the Argentine
Government on notice of its intent to file an arbitration with respect to
alleged violations of the Treaty on Encouragement and Reciprocal Protection of
Investments, between the Argentine Republic and the United States of America,
dated November 14, 1991 (the "Treaty"). On March 24, 2004, RGA Reinsurance filed
a request for arbitration of its dispute relating to these alleged violations
pursuant to the Washington Convention of 1965 on the Settlement of Investment
Disputes under the auspices of the International Centre for Settlement of
Investment Disputes of the World Bank.
The Company has obtained letters of credit in favor of various affiliated and
unaffiliated insurance companies from which the Company assumes business. This
allows the ceding company to take statutory reserve credits. The letters of
credit issued by banks represent a guarantee of performance under the
reinsurance agreements. At June 30, 2004, there were approximately $38.7 million
of outstanding letters of credit in favor of third-party entities. Additionally,
the Company utilizes letters of credit to secure reserve credits when it
retrocedes business to its offshore subsidiaries, including RGA Americas
Reinsurance Company, Ltd. and RGA Reinsurance Company (Barbados) Ltd. As of June
30, 2004, $280.6 million in letters of credit from various banks were
outstanding between the various subsidiaries of the Company. Fees associated
with letters of credit are not fixed for periods in excess of one year and are
based on the Company's ratings and the general availability of these instruments
in the marketplace.
RGA has issued guarantees of its subsidiaries' performance for the payment of
amounts due under certain credit facilities and reinsurance treaties, whereby if
a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries
will make a payment to fulfill the obligation. Treaty guarantees are granted to
ceding companies in order to provide them additional security, particularly in
cases where RGA's subsidiary is relatively new, unrated, or not of a significant
size, relative to the ceding company. Liabilities supported by the treaty
guarantees, before consideration for any legally offsetting amounts due from the
guaranteed party, totaled $242.1 million as of June 30, 2004 and are reflected
on the Company's consolidated balance sheet as future policy benefits.
Guarantees related to credit facilities provide additional security to third
party banks should a subsidiary fail to make principal and/or interest payments
when due. As of June 30, 2004, RGA's exposure related to credit facility
guarantees was $51.8 million, the maximum potential amount under current
facility terms.
6. EMPLOYEE BENEFIT PLANS
The components of net periodic benefit costs were as follows:
------------------------------------------------------
PENSION BENEFITS OTHER BENEFITS
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(in thousands) 2004 2003 2004 2003
------------------------------------------------------
DETERMINATION OF NET PERIODIC BENEFIT COST:
Service cost $ 884 $ 737 $ 188 $ 157
Interest cost 631 526 182 152
Expected return on plan assets (386) (322) -- --
Amortization of prior service cost 18 15 -- --
Amortization of prior actuarial loss 85 71 36 30
-------- -------- ----- -------
Net periodic benefit cost $ 1,232 $ 1,027 $ 406 $ 339
======== ======== ===== =======
The Company paid $2.9 million in pension contributions during the second quarter
of 2004 and expects this to be the only contribution for the year.
9
7. NEW ACCOUNTING STANDARDS
In March 2004, the Emerging Issues Task Force ("EITF") reached further consensus
on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments" ("EITF 03-1"). EITF 03-1 provides accounting
guidance regarding the determination of when an impairment of debt and
marketable equity securities and investments accounted for under the cost method
should be considered other-than-temporary and recognized in income. An EITF 03-1
consensus reached in December 2003 also requires certain quantitative and
qualitative disclosures for debt and marketable equity securities classified as
available-for-sale or held-to-maturity under SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, that are impaired at the balance
sheet date but for which an other-than-temporary impairment has not been
recognized. The disclosure requirements of EITF 03-1 were effective December 31,
2003. The accounting guidance of EITF 03-1 will be effective in the third
quarter of 2004 and is not expected to have a material impact on the Company's
consolidated financial statements.
In March 2004, the EITF reached consensuses on Issue No. 03-6, "Participating
Securities and the Two-Class Method under FASB Statement No. 128" ("EITF 03-6").
EITF 03-6 provides guidance in determining whether a security should be
considered a participating security for purposes of computing earnings per share
and how earnings should be allocated to the participating security. EITF 03-6,
which was effective for the Company in the second quarter of 2004, did not have
an impact on the Company's earnings per share calculations.
In March 2004, the EITF reached consensus on Issue No. 03-16, "Accounting for
Investments in Limited Liability Companies" ("EITF 03-16"). EITF 03-16 provides
guidance regarding whether a limited liability company should be viewed as
similar to a corporation or similar to a partnership for purposes of determining
whether a noncontrolling investment should be accounted for using the cost
method or the equity method of accounting. EITF 03-16, which will be effective
in the third quarter of 2004, is not expected to have a material impact on the
Company's unaudited interim condensed consolidated financial statements.
In July 2003, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts." SOP
03-1 provides guidance on separate account presentation and valuation, the
accounting for sales inducements and the classification and valuation of
long-duration contract liabilities. The Company adopted the provisions of SOP
03-1 on January 1, 2004, recording a charge of $361 thousand, net of income
taxes.
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"),
an interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," which requires the consolidation by a business enterprise
of variable interest entities if the business enterprise is the primary
beneficiary. FIN 46 was effective January 31, 2003, for the Company with respect
to interests in variable interest entities obtained after that date. With
respect to interests in variable interest entities existing prior to February 1,
2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), which
extended the effective date of FIN 46 to the period ending March 31, 2004. The
Company adopted the provisions of FIN 46 as of March 31, 2004 and is not
required to consolidate any material interests in variable interest entities.
8. SIGNIFICANT TRANSACTION
During December 2003, the Company completed a large coinsurance agreement with
Allianz Life Insurance Company of North America ("Allianz Life"). Under this
agreement, RGA Reinsurance assumed the traditional life reinsurance business of
Allianz Life, including yearly renewable term reinsurance and coinsurance of
term policies. The business assumed does not include any accident and health
risk, annuities or related guaranteed minimum death benefits or guaranteed
minimum income benefits. This transaction adds additional scale to the Company's
U.S. traditional business, but does not significantly add to its client base
since most of the underlying ceding companies are already clients. The Company
is using commercially reasonable efforts to novate the underlying treaties from
Allianz Life to RGA Reinsurance. Novation results in the underlying client
companies reinsuring the business directly to RGA Reinsurance versus passing
through Allianz Life. The profitability of the business is not dependent on
novation. The transaction was effective retroactive to July 1, 2003.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Our primary business is life reinsurance, which involves reinsuring life
insurance policies that are often in force for the remaining lifetime of the
underlying individuals insured, with premiums earned typically over a period of
10 to 30 years. Each year, however, a portion of the business under existing
treaties terminates due to, among other things, lapses or surrenders of
underlying policies, deaths of policyholders, and the exercise of recapture
options by ceding companies.
We derive revenues primarily from renewal premiums from existing reinsurance
treaties, new business premiums from existing or new reinsurance treaties,
income earned on invested assets, and fees earned from financial reinsurance
transactions. We believe that industry trends have not materially changed from
those discussed in our 2003 Annual Report. In addition, our critical accounting
policies are substantially the same as those disclosed in our 2003 Annual
Report.
Our profitability primarily depends on the volume and amount of death claims
incurred and our ability to adequately price the risks we assume. While death
claims are reasonably predictable over a period of many years, claims become
less predictable over shorter periods and are subject to significant fluctuation
from quarter to quarter and year to year. Effective July 1, 2003, we increased
the maximum amount of coverage that we retain per life from $4 million to $6
million. This increase does not affect business written prior to July 1, 2003.
Claims in excess of this retention amount are retroceded to retrocessionaires;
however, we remain fully liable to the ceding company, our customer, for the
entire amount of risk we assume. The increase in our retention limit from $4
million to $6 million reduces the amount of premiums we pay to our
retrocessionaires, but increases the maximum impact a single death claim can
have on our results and therefore may result in additional volatility to our
results from operations.
We measure performance based on income or loss from continuing operations before
income taxes for each of our five segments. Our U.S., Canada, Asia Pacific and
Europe & South Africa operations provide traditional life reinsurance to their
clients. U.S. operations also provide asset-intensive and financial reinsurance
products. We also provide insurers with critical illness reinsurance in our
Canada, Asia Pacific and Europe & South Africa operations. Asia Pacific
operations provide a limited amount of financial reinsurance. Corporate and
Other segment results include the corporate investment activity, general
corporate expenses, interest expense of RGA, Argentine privatized pension
business and the provision for income taxes. Our discontinued accident and
health operations are not reflected in our results from continuing operations.
RESULTS OF OPERATIONS
Consolidated income from continuing operations before income taxes increased
$38.4 million, or 57.3%, and $83.3 million, or 71.3%, for the second quarter and
first six months of 2004, respectively, primarily due to higher revenue levels,
including net capital gains on investment transactions. Our coinsurance
agreement with Allianz Life Insurance Company of North America ("Allianz Life"),
signed in December 2003 and effective as of July 1, 2003, continued to provide
positive results concurrent with growth in life reinsurance premiums in all of
our operating segments. Consolidated premiums increased $214.7 million, or
36.9%, and $483.4 million, or 42.9%, during the second quarter and first six
months of 2004, respectively. The Allianz Life transaction contributed $121.1
million of this increase during the second quarter and $239.6 for the first six
months of 2004.
Consolidated investment income, net of related expenses, increased $18.2
million, or 15.7%, and $44.7 million, or 20%, during the second quarter and
first six months of 2004, respectively, primarily due to a larger invested asset
base. Invested assets as of June 30, 2004 totaled $9.4 billion, a 23.1% increase
over June 30, 2003. While our invested asset base has grown significantly since
June 30, 2003, the average yield earned on investments excluding funds withheld
decreased from 6.67% during the second quarter of 2003 to 5.79% for the second
quarter of 2004. The decreasing yield is the result of the Company investing
proceeds from operations and investing activities in a lower interest rate
environment. The average yield will vary from quarter to quarter and year to
year depending on a number of variables, including the prevailing interest rate
environment and changes in the mix of our underlying investments. Investment
income is allocated to the segments based upon average assets and related
capital levels deemed appropriate to support the segment business volumes.
11
Effective tax rates on a consolidated basis for the second quarter of 2004 and
2003 were 35.1% and 35.0%, respectively.
Further discussion and analysis of the results for 2004 compared to 2003 are
presented by segment. Certain prior-year amounts have been reclassified to
conform to the current-year presentation. References to income before income
taxes exclude the effects of discontinued operations and the cumulative effect
of changes in accounting principles.
U.S. OPERATIONS
U.S. operations consist of two major sub-segments: Traditional and
Non-Traditional. The Traditional sub-segment primarily specializes in
mortality-risk reinsurance. The Non-traditional category consists of
Asset-Intensive and Financial Reinsurance.
FOR THE THREE MONTHS ENDED JUNE 30, 2004 (IN THOUSANDS)
--------------------------------------------------
NON-TRADITIONAL
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
--------------------------------------------------
REVENUES:
Net premiums $ 530,129 $ 1,190 $ -- $ 531,319
Investment income, net of related expenses 53,974 47,495 72 101,541
Realized investment gains (losses), net 3,662 (821) -- 2,841
Change in value of embedded derivatives -- 17,472 -- 17,472
Other revenues 931 1,907 6,958 9,796
---------- ---------- ---------- ----------
Total revenues 588,696 67,243 7,030 662,969
BENEFITS AND EXPENSES:
Claims and other policy benefits 429,423 3,246 -- 432,669
Interest credited 12,117 31,704 -- 43,821
Policy acquisition costs and other insurance
expenses 72,714 8,484 2,280 83,478
Change in deferred acquisition costs associated
with change in value of embedded derivatives -- 13,293 -- 13,293
Other operating expenses 11,341 1,028 1,529 13,898
---------- ---------- ---------- ----------
Total benefits and expenses 525,595 57,755 3,809 587,159
Income before income taxes $ 63,101 $ 9,488 $ 3,221 $ 75,810
========== ========== ========== ==========
FOR THE THREE MONTHS ENDED JUNE 30, 2003 (IN THOUSANDS)
--------------------------------------------------
NON-TRADITIONAL
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
--------------------------------------------------
REVENUES:
Net premiums $ 378,382 $ 1,006 $ -- $ 379,388
Investment income, net of related expenses 45,175 42,204 -- 87,379
Realized investment gains (losses), net (714) 1,148 -- 434
Other revenues 884 1,766 6,655 9,305
---------- ---------- ----------- ----------
Total revenues 423,727 46,124 6,655 476,506
BENEFITS AND EXPENSES:
Claims and other policy benefits 297,525 1,771 -- 299,296
Interest credited 14,931 28,580 -- 43,511
Policy acquisition costs and other insurance 56,714 8,003 2,721 67,438
expenses
Other operating expenses 8,484 826 1,190 10,500
---------- ---------- ---------- ----------
Total benefits and expenses 377,654 39,180 3,911 420,745
Income before income taxes $ 46,073 $ 6,944 $ 2,744 $ 55,761
========== ========= ========== ==========
12
FOR THE SIX MONTHS ENDED JUNE 30, 2004 (IN THOUSANDS)
--------------------------------------------------
NON-TRADITIONAL
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
--------------------------------------------------
REVENUES:
Net premiums $ 1,061,340 $ 2,372 $ -- $1,063,712
Investment income, net of related expenses 108,027 92,962 115 201,104
Realized investment gains (losses), net 11,220 (677) -- 10,543
Change in value of embedded derivatives -- 18,994 -- 18,994
Other revenues 2,265 3,577 13,338 19,180
----------- ---------- ---------- ----------
Total revenues 1,182,852 117,228 13,453 1,313,533
BENEFITS AND EXPENSES:
Claims and other policy benefits 860,314 2,225 -- 862,539
Interest credited 24,195 66,198 -- 90,393
Policy acquisition costs and other insurance 148,145 16,129 4,574 168,848
expenses
Change in deferred acquisition costs associated
with change in value of embedded derivatives -- 17,493 -- 17,493
Other operating expenses 23,065 2,187 2,951 28,203
----------- ---------- ---------- ----------
Total benefits and expenses 1,055,719 104,232 7,525 1,167,476
Income before income taxes $ 127,133 $ 12,996 $ 5,928 $ 146,057
=========== ========== ========== ==========
FOR THE SIX MONTHS ENDED JUNE 30, 2003 (IN THOUSANDS)
--------------------------------------------------
NON-TRADITIONAL
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
--------------------------------------------------
REVENUES:
Net premiums $ 747,189 $ 2,104 $ -- $ 749,293
Investment income, net of related expenses 87,876 78,538 -- 166,414
Realized investment losses, net (5,958) (1,713) -- (7,671)
Other revenues 2,697 3,013 13,566 19,276
---------- --------- ---------- ----------
Total revenues 831,804 81,942 13,566 927,312
BENEFITS AND EXPENSES:
Claims and other policy benefits 591,251 3,390 -- 594,641
Interest credited 30,250 53,721 -- 83,971
Policy acquisition costs and other insurance
expenses 107,519 16,031 5,241 128,791
Other operating expenses 16,939 1,938 2,633 21,510
---------- --------- ---------- ----------
Total benefits and expenses 745,959 75,080 7,874 828,913
Income before income taxes $ 85,845 $ 6,862 $ 5,692 $ 98,399
========== ========= ========== ==========
Income before income taxes for the U.S. Operations segment totaled $75.8 million
and $146.1 million for the second quarter and first six months of 2004,
increases of 36.0% and 48.4% from the comparable prior-year periods. The
increase in income can be attributed to higher revenue levels and net capital
gains on investment transactions for the current-year periods.
Traditional Reinsurance
The U.S. traditional sub-segment provides life reinsurance to domestic clients
for a variety of life products through yearly renewable term agreements,
coinsurance, and modified coinsurance arrangements. These reinsurance
arrangements may be either facultative or automatic agreements. During the
second quarter and first six months of 2004, this sub-segment added $51.7
billion and $95.9 billion face amount of new business compared to $39.5 billion
13
and $66.0 billion for the same periods in 2003. Total assumed reinsurance in
force, as measured by policy face amount, totaled $965.3 billion, an increase of
65.2% over the total at June 30, 2003. The Allianz Life transaction, completed
in the fourth quarter of 2003, contributed 50.4% of the increase for the
comparable periods. Management believes life insurance industry consolidations
and the trend towards reinsuring mortality risks should continue to provide
opportunities for growth, although transactions the size of Allianz Life may or
may not occur.
Income before income taxes for U.S. traditional reinsurance increased $ 17.0
million, or 37.0%, and $ 41.3 million, or 48.1%, in the second quarter and first
six months of 2004, respectively. This increase for the comparable periods was
driven by growth in net premiums, including the Allianz transaction, and net
realized investment gains, somewhat offset by higher mortality experience during
2004.
Net premiums for U.S. traditional reinsurance increased 40.1% and 42.0% for the
second quarter and first six months of 2004, respectively. The increase for
comparable periods was primarily attributed to the Allianz transaction, which
contributed 32.0% and 32.1% of the increase for the comparable periods. New
premiums from facultative and automatic treaties and renewal premiums on
existing blocks of business also contributed to the growth.
Net investment income increased 19.5% and 22.9% for the second quarter and first
six months of 2004, respectively. The increase is due to growth in the invested
asset base, primarily due to the Allianz Life transaction, and increased cash
flows from operating activities on traditional reinsurance.
Loss ratios (claims and other policy benefits divided by net premiums) were
81.0% and 81.1% during the second quarter and first six months, respectively,
compared to 78.6% and 79.1% for the same periods in 2003. The increase in the
loss ratios for the comparable periods is the result of somewhat higher claims
experience in 2004 compared to favorable claims experience in the first and
second quarter of 2003. Management believes death claims are reasonably
predictable over a period of many years, but are less predictable over shorter
periods and are subject to significant fluctuation.
Interest credited relates to amounts credited on the Company's cash value
products in this sub-segment, which have a significant mortality component. This
amount fluctuates with the changes in deposit levels, cash surrender values and
investment performance.
As a percentage of net premiums, policy acquisition costs and other insurance
expenses were 13.7% and 14.0% for the second quarter and first six months of
2004, respectively, compared to 15.0% and 14.4% for the same periods in 2003.
These percentages will fluctuate due to varying allowance levels within
coinsurance-type arrangements and the amortization pattern of previously
capitalized amounts, which are based on the form of reinsurance agreement and
the underlying insurance polices. Additionally, the mix of first year
coinsurance versus yearly renewable term can cause the percentage to fluctuate
from period to period.
Asset-Intensive Reinsurance
The U.S. asset-intensive sub-segment concentrates on the investment risk within
underlying annuities and corporate-owned life insurance policies. Most of these
agreements are coinsurance or modified coinsurance of non-mortality risks such
that the Company recognizes profit or losses primarily from the spread between
the investment earnings and interest credited on the underlying deposit
liabilities. Several of the coinsurance agreements are on a funds withheld at
interest basis.
Income before income taxes for the second quarter and first six months of 2004
was $9.5 million and $13.0 million, respectively, compared to $6.9 million for
both comparable prior-year periods in 2003. Contributing to the increase for the
comparable periods was the continued growth in annuity business coupled with the
change in the fair market value of embedded derivatives. The average asset base
supporting this segment grew from $2.6 billion in the second quarter of 2003 to
$3.2 billion for the same quarter in 2004. The growth in the asset base was
primarily driven by new business written on existing annuity treaties. Invested
assets outstanding as of June 30, 2004 and 2003 were $3.3 billion and $2.9
billion, of which $2.2 billion and $1.7 billion were funds withheld at interest,
respectively. The change in value of embedded derivatives was largely offset by
the associated change in deferred acquisition costs.
Total revenues, which are comprised primarily of investment income, were $67.2
million and $117.2 million in the second quarter and first six months of 2004,
respectively, compared to $46.1 million and $81.9 million for the comparable
prior-year periods. This growth in revenue is primarily the result of the
increase in the average asset base for the comparable periods and the change in
the fair value of embedded derivatives.
14
Total expenses, which are comprised primarily of interest credited, policy
benefits and acquisition costs, were $57.8 million and $104.2 million for second
quarter and first six months in 2004, respectively, compared to $39.2 million
and $75.1 million in the prior-year periods. The increase in expenses was
attributed to the change in deferred acquisition costs associated with change in
value of embedded derivatives. Further, an increase in interest credited, which
is generally offset by the increase in investment income, was the result of the
growth in the asset base supporting this segment.
Financial Reinsurance
The U.S. financial reinsurance sub-segment includes net fees earned on financial
reinsurance agreements. Financial reinsurance agreements represent low risk
business that the Company assumes and generally subsequently retrocedes with a
net fee earned on the transaction. The fees earned from the assumption of
financial reinsurance contracts are reflected in other revenues, and the fees
paid to retrocessionaires are reflected in policy acquisition costs and other
insurance expenses.
Income before income taxes totaled $3.2 million and $5.9 million in the second
quarter and first six months of 2004, respectively, compared to $2.7 million and
$5.7 million for the same periods in 2003. The increase was attributed to growth
in net fees somewhat offset by higher operating expenses. At June 30, 2004 and
2003, financial reinsurance outstanding, as measured by pre-tax statutory
surplus, was $1.2 billion and $1.1 billion, respectively.
CANADA OPERATIONS
The Company conducts reinsurance business in Canada through RGA Life Reinsurance
Company of Canada ("RGA Canada"), a wholly-owned company. RGA Canada is a
leading life reinsurer in Canada, assisting clients with capital management
activity and mortality risk management, and is primarily engaged in traditional
individual life reinsurance, as well as non-guaranteed critical illness
products.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
(in thousands) JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2004 JUNE 30, 2003
REVENUES:
Net premiums $ 61,830 $ 52,017 $ 121,978 $ 100,603
Investment income, net of related expenses
23,437 21,509 47,417 41,275
Realized investment gains, net 6,869 3,825 8,178 3,562
Other revenues 31 (176) 69 (241)
--------- --------- --------- ---------
Total revenues 92,167 77,175 177,642 145,199
BENEFITS AND EXPENSES:
Claims and other policy benefits 59,499 56,149 118,865 105,279
Interest credited 418 264 795 553
Policy acquisition costs and other
insurance expenses 8,278 4,864 15,361 10,457
Other operating expenses 2,761 2,469 5,490 4,854
--------- --------- --------- ---------
Total benefits and expenses 70,956 63,746 140,511 121,143
Income before income taxes $ 21,211 $ 13,429 $ 37,131 $ 24,056
========= ========= ========= =========
Income before income taxes increased $7.8 million, or 57.9%, and $13.1 million,
or 54.4%, in the second quarter and first six months of 2004, respectively. The
increases in 2004 were primarily related to better than expected mortality
experience and increases in realized investment gains of $3.0 million and $4.6
million in the second quarter and first six months, respectively. Additionally,
a stronger Canadian dollar versus the U.S. dollar contributed $0.4 million and
$2.0 million in the second quarter and first six months, respectively, to income
before income taxes.
Net premiums increased $9.8 million, or 18.9%, and $21.4 million, or 21.2%, in
the second quarter and first six months of 2004, respectively. A stronger
Canadian dollar during 2004 contributed $1.9 million and $9.5 million in the
second quarter and first six months, respectively, to net premiums reported
during 2004. Premium levels are
15
significantly influenced by large transactions, mix of business, and reporting
practices of ceding companies and, therefore, can fluctuate from period to
period.
Net investment income increased 9.0% and 14.9% in the second quarter and first
six months of 2004, respectively. Investment performance varies with the
composition of investments. In 2004, the increase was due to an increase in the
invested asset base and the strengthening of the foreign exchange rate, the
latter of which contributed $0.6 million and $3.5 million in the second quarter
and first six months of 2004, respectively. The invested asset base growth is
due to higher operating cash flows on traditional reinsurance and interest on an
increasing amount of funds withheld at interest related to one treaty.
Loss ratios for this segment were 96.2% and 97.4% in the second quarter and
first six months of 2004, respectively, compared to 107.9% and 104.6% in the
comparable prior-year periods. Lower loss ratios for the current periods are
primarily due to better mortality experience compared to the prior-year periods.
Historical loss ratios for this segment have generally exceeded 100% primarily
as a result of several large inforce blocks assumed in 1998 and 1997. These
blocks are mature blocks of level premium business where loss ratios are
expected to increase over time as the Company is required to invest the amounts
received in excess of mortality costs to fund claims in future years. Claims and
other policy benefits as a percentage of net premiums and investment income were
69.8% and 70.2% in the second quarter and first six months of 2004,
respectively, compared to 76.4% and 74.2% in the prior-year periods. Management
believes death claims are reasonably predictable over a period of many years,
but are less predictable over shorter periods and are subject to significant
fluctuation.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums totaled 13.4% and 12.6% in the second quarter and first six months of
2004, respectively, compared to 9.4% and 10.4% in the prior-year periods. Policy
acquisition costs and other insurance expenses as a percentage of net premiums
vary from period to period primarily due to the mix of business in the segment.
EUROPE & SOUTH AFRICA OPERATIONS
The Europe & South Africa segment writes business in Europe (primarily in the
United Kingdom and Spain), India and South Africa. This segment provides life
reinsurance for a variety of products through yearly renewable term and
coinsurance agreements, and reinsurance of accelerated critical illness coverage
(pays on the earlier of death or diagnosis of a pre-defined critical illness).
Reinsurance agreements may be either facultative or automatic agreements
covering primarily individual risks and in some markets, group risks.
--------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
(in thousands) JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2004 JUNE 30, 2003
--------------------------------------------------------------------
REVENUES:
Net premiums $118,887 $ 83,450 $236,090 $167,327
Investment income, net of related expenses
863 639 2,407 1,479
Realized investment gains, net 1,143 23 4,302 848
Other revenues 444 299 882 123
-------- -------- -------- --------
Total revenues 121,337 84,411 243,681 169,777
BENEFITS AND EXPENSES:
Claims and other policy benefits 73,809 47,450 155,806 101,233
Policy acquisition costs and other
insurance expenses 29,842 28,689 58,873 54,223
Other operating expenses 5,524 4,106 10,206 7,546
Interest expense 333 264 707 464
-------- -------- -------- --------
Total benefits and expenses 109,508 80,509 225,592 163,466
Income before income taxes $ 11,829 $ 3,902 $ 18,089 $ 6,311
======== ======== ======== ========
16
Income before income taxes during the second quarter of 2004 compared to 2003
increased 203.2% from $3.9 million to $11.8 million, driven by a 42.5% growth in
premiums from $83.5 million to $118.9 million and higher realized investment
gains. For the six months ended June 30, 2004, income from continuing operations
before income taxes grew from $6.3 million to $18.1 million, primarily
attributable to a 41.1% increase in premiums from $167.3 million to $236.1
million and higher realized investment gains. In addition, strengthening foreign
currencies contributed $0.9 million and $1.5 million to income from continuing
operations before income taxes for the second quarter and the first six months
of 2004, respectively.
Net premiums increased 42.5% and 41.1% in the second quarter and first six
months of 2004, respectively. This was primarily due to new business from new
and existing treaties, combined with favorable currency exchange rates. Several
foreign currencies, particularly the British pound, the euro, and the South
African rand, were stronger against the U.S. dollar in the 2004 periods compared
to 2003. Stronger local currencies contributed approximately $11.5 million and
$28.8 million to net premiums for the second quarter and first six months of
2004, respectively. Also, a portion of the growth in premiums was due to
reinsurance of accelerated critical illness. This coverage provides a benefit in
the event of a death from or the diagnosis of a defined critical illness.
Premiums earned during the second quarter and first six months associated with
critical illness coverage totaled $41.2 million and $86.9 million, respectively,
compared to $31.6 million and $70.2 million in the prior-year periods. Premium
levels are significantly influenced by large transactions and reporting
practices of ceding companies and therefore can fluctuate from period to period.
Net investment income increased by $0.2 million in the second quarter of 2004
and $0.9 million for the six months ended June 30, 2004 due to growth in the
investment assets in the United Kingdom and South Africa, growth in the
allocated invested asset base, and favorable exchange rates. Investment
performance varies with the composition of investments and the relative
allocation of capital to the operating segments.
Loss ratios were 62.1% and 66.0% in the second quarter and first six months of
2004, respectively, compared to 56.9% and 60.5% in the prior-year periods. This
ratio will fluctuate due to variations in the mixture and materiality of
business being reinsured and the timing of client reporting. Death claims are
reasonably predictable over a period of many years, but are less predictable
over shorter periods and are subject to significant fluctuation.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums totaled 25.1% and 24.9% for the second quarter and first six months of
2004, respectively, compared to 34.4% and 32.4% in the prior-year periods. These
percentages fluctuate due to variations in the mixture of business being
reinsured and the relative maturity of the business. In addition, as the segment
grows, renewal premiums, which have lower allowances than first year premiums,
represent a greater percentage of the total premiums. Accordingly, the ratio of
allowances to premiums declines.
Policy acquisition costs are capitalized and charged to expense in proportion to
premium revenue recognized. Acquisition costs, as a percentage of premiums,
associated with some treaties in the United Kingdom are typically higher than
those experienced in the Company's other segments. Future recoverability of the
capitalized policy acquisition costs on this business is primarily sensitive to
mortality and morbidity experience. If actual experience suggests higher
mortality and morbidity rates going forward than currently contemplated in
management's estimates, the Company may record a charge to income, due to a
reduction in deferred acquisition costs and, to the extent there are no
unamortized acquisition costs, an increase in future policy benefits.
Other operating expenses, as a percentage of net premiums were 4.6% and 4.3% for
the second quarter and first six months of 2004, respectively, compared to 4.9%
and 4.5% in the prior-year periods. The Company believes that sustained growth
in premiums should lessen the burden of start-up expenses and expansion costs
over time. Interest expense increased in 2004 over 2003 due to higher interest
rates, an increase in debt levels in the United Kingdom to support the growth in
operations, and the effect of foreign exchange rates increasing against the U.S.
dollar over the prior year.
ASIA PACIFIC OPERATIONS
The Asia Pacific segment writes business primarily in Australia, Hong Kong,
Japan, Malaysia, New Zealand, South Korea and Taiwan. The principal types of
reinsurance for this segment include life, critical care and illness,
17
disability income, superannuation, and financial reinsurance. Superannuation is
the Australian government mandated compulsory retirement savings program.
Superannuation funds accumulate retirement funds for employees, and in addition,
offer life and disability insurance coverage. Reinsurance agreements may be
either facultative or automatic agreements covering primarily individual risks
and in some markets, group risks. The Company operates multiple offices
throughout each region to best meet the needs of the local client companies.
----------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
(in thousands) JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2004 JUNE 30, 2003
----------------------------------------------------------------
REVENUES:
Net premiums $ 84,178 $ 66,165 $ 187,717 $ 108,575
Investment income, net of related expenses
3,029 2,421 6,764 5,148
Realized investment gains (losses), net (149) (131) 198 (518)
Other revenues 2,950 707 3,585 907
--------- --------- --------- ---------
Total revenues 90,008 69,162 198,264 114,112
BENEFITS AND EXPENSES:
Claims and other policy benefits 67,380 47,190 142,225 74,454
Policy acquisition costs and other
insurance expenses 11,878 13,006 33,408 24,528
Other operating expenses 5,673 4,189 10,415 8,716
Interest expense 383 250 725 519
--------- --------- --------- ---------
Total benefits and expenses 85,314 64,635 186,773 108,217
Income before income taxes $ 4,694 $ 4,527 $ 11,491 $ 5,895
--------- --------- --------- ---------
Income before income taxes increased from $4.5 million to $4.7 million during
the second quarter of 2004, and from $5.9 million to $11.5 million for the first
six months of 2004. Strengthening foreign currencies contributed $0.4 million
and $1.0 million to income before income taxes for the second quarter and first
six months of 2004, respectively. While the Asia Pacific segment did experience
27.2% growth in net premiums from $66.2 million to $84.2 million during the
second quarter of 2004, and a 72.9% growth in net premiums from $108.6 million
to $187.7 million for the first six months of 2004, increased loss ratios
prevented an equivalent percentage growth in income before income taxes for the
respective periods. The percentage growth in net premiums for the six-month
comparable periods is not necessarily indicative of the percentages the Company
expects for the year ending December 31, 2004. As the comparable net premium
base grows, this percentage is expected to decrease.
The growth in net premiums for the quarter in the Asia Pacific segment was
generated by new business premiums from facultative and automatic treaties and
renewal premiums from existing treaties, including premiums associated with
accelerated critical illness coverage. The growth was also aided by favorable
exchange rates, with several of the local currencies strengthening against the
U.S. dollar. Stronger local currencies contributed approximately $6.4 million
and $20.4 million to net premiums for the second quarter and first six months of
2004, respectively. Premiums earned during the second quarter of 2004 associated
with critical illness coverage totaled $9.8 million compared to $7.7 million in
the second quarter of 2003. Premiums earned associated with critical illness
coverage for the six months ended June 30, 2004 totaled $18.2 million, compared
to $10.3 million for the six months ended June 30, 2003. Premium levels are
significantly influenced by large transactions and reporting practices of ceding
companies and therefore may fluctuate from period to period.
Net investment income increased to $3.0 million in the second quarter of 2004
due to an increase in allocated assets supporting the growth in the overall
business. Investment income and realized investment gains and losses are
allocated to the operating segments on the basis of capital required to support
underlying business and investment performance varies with the composition of
investments and the relative allocation of capital to units. Other revenues
increased $2.2 million and $2.7 million during the second quarter and first six
months of 2004, respectively, primarily due to fees associated with the
recapture of two treaties and new fees earned on financial reinsurance
transactions.
18
Loss ratios in Asia Pacific increased from 71.3% for the second quarter of 2003
to 80.0% for the second quarter of 2004, and from 68.6% for the six months ended
June 30, 2003 to 75.8% for the six months ended June 30, 2004. This ratio will
fluctuate due to timing of client company reporting, variations in the mixture
of business being reinsured, and the relative maturity of the business.
Management believes death claims are reasonably predictable over a period of
many years, but are less predictable over shorter periods and are subject to
significant fluctuation.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums were 14.1% in the second quarter of 2004 compared to 19.7% in the
second quarter of 2003, and 17.8% for the six months ended June 30, 2004
compared to 22.6% for the six months ended June 30, 2003. These percentages
fluctuate due to the timing of client company reporting and variations in the
type of business being written, along with the mix of new and renewal business.
Other operating expenses for the quarter increased from 6.3% of premiums in 2003
to 6.7% in 2004, while for the first six months it decreased from 8.0% to 5.5%.
Generally, as net premiums grow, the burden of start-up expenses and expansion
costs are somewhat alleviated. The timing of the entrance into and development
of new markets may cause other operating expenses as a percentage of premiums to
be somewhat volatile on a comparative quarter basis. Interest expense increased
in 2004 over 2003 due to higher interest rates, an increase in debt levels in
Australia to support the growth in operations, and the effect of foreign
exchange rates increasing against the U.S. dollar over the prior year.
CORPORATE AND OTHER OPERATIONS
Corporate and Other revenues include investment income from invested assets not
allocated to support segment operations and undeployed proceeds from the
Company's capital raising efforts, in addition to unallocated realized capital
gains or losses. General corporate expenses consist of unallocated overhead and
executive costs and interest expense related to debt and the $225.0 million of
5.75% mandatorily redeemable trust preferred securities. Additionally, the
Corporate and Other operations segment includes results from RGA Technology
Partners ("RTP"), a wholly-owned subsidiary that develops and markets technology
solutions for the insurance industry, the Company's Argentine privatized pension
business, which is currently in run-off (see discussion of status below), and an
insignificant amount of direct insurance operations in Argentina.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
(in thousands) JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2004 JUNE 30, 2003
------------- ------------- ------------- -------------
REVENUES:
Net premiums $ 1,094 $ 1,541 $ 1,685 $ 1,978
Investment income, net of related expenses 5,315 3,988 10,053 8,765
Realized investment gains (losses), net 1,987 (107) 7,886 (2,005)
Other revenues 1,538 1,699 2,893 2,786
-------- -------- -------- --------
Total revenues 9,934 7,121 22,517 11,524
BENEFITS AND EXPENSES:
Claims and other policy benefits 1,445 2,547 2,421 630
Interest credited 93 92 162 139
Policy acquisition costs and other insurance expenses 681 991 735 1,570
Other operating expenses 7,040 5,573 14,111 9,966
Interest expense 8,826 8,528 17,648 17,018
-------- -------- -------- --------
Total benefits and expenses 18,085 17,731 35,077 29,323
Loss before income taxes $ (8,151) $(10,610) $(12,560) $(17,799)
======== ======== ======== ========
Losses before income taxes decreased 23.2% and 29.4% for the three- and
six-month periods ended June 30, 2004, respectively. Increases in investment
income and realized investment gains helped drive losses before income taxes
lower for both periods compared to 2003. These increases were offset in part by
higher claims and other policy
19
benefits for the year-to-date comparables. Foreign currency gains in the prior
year helped reduce the level of claims and policy benefits on a year-to-date
basis. Other operating expenses increased primarily due to growth in segment
headcount and related compensation expenses.
As discussed in the Company's 2003 Annual Report, certain regulations were
pending relating to permanently disabled participants of the privatized pension
plans administered by Administradoras de Fondos de Jubilaciones y Pensiones
("AFJPs"). Recently, the Argentine government enacted those regulations. The new
regulations require permanently disabled AFJP plan participants to elect a
programmed withdrawal or an annuity with respect to deferred disability claims
at a time when the AFJP fund unit values are significantly inflated. The new
regulations are expected to accelerate permanent disability payments from
reinsurers; particularly with respect to plan participants that elect programmed
withdrawal. The Company cannot predict the percentage of plan participants that
will elect programmed withdrawal as opposed to an annuity. Also, as discussed in
the Company's 2003 Annual Report, the Company had placed the Argentine
Government on notice of its intent to file an arbitration with respect to
alleged violations of the Treaty on Encouragement and Reciprocal Protection of
Investments, between the Argentine Republic and the United States of America,
dated November 14, 1991 (the "Treaty"). On March 24, 2004, RGA Reinsurance filed
a request for arbitration of its dispute relating to these alleged violations
pursuant to the Washington Convention of 1965 on the Settlement of Investment
Disputes under the auspices of the International Centre for Settlement of
Investment Disputes of the World Bank.
DISCONTINUED OPERATIONS
The discontinued accident and health division reported a loss, net of taxes, of
$3.1 million for the second quarter of 2004 compared to a loss, net of taxes, of
$1.0 million for the second quarter of 2003. The increase in net loss was due
primarily to an arbitration settlement that exceeded estimated reserves. The
calculation of the claim reserve liability for the entire portfolio of accident
and health business requires management to make estimates and assumptions that
affect the reported claim reserve levels. Management must make estimates and
assumptions based on historical loss experience, changes in the nature of the
business, anticipated outcomes of claim disputes and claims for rescission, and
projected future premium run-off, all of which may affect the level of the claim
reserve liability. Due to the significant uncertainty associated with the
run-off of this business, net income in future periods could be affected
positively or negatively.
LIQUIDITY AND CAPITAL RESOURCES
The Holding Company
RGA is a holding company whose primary uses of liquidity include, but are not
limited to, the immediate capital needs of its operating companies associated
with the Company's primary businesses, dividends paid by RGA to its
shareholders, interest payments on its senior indebtedness and junior
subordinated notes (See Notes 15, "Long-Term Debt," and 16, "Issuance of Trust
Piers Units," in the 2003 Annual Report), and repurchases of RGA common stock
under a plan approved by the board of directors. In 2001, the Company's board of
directors approved a repurchase program authorizing RGA to purchase up to $50.0
million of its shares of stock. RGA purchased approximately 0.2 million shares
of treasury stock under the program at an aggregate cost of $6.6 million during
2002. The Company has not purchased any of its shares since 2002 and has no
plans to purchase additional shares at this time. The primary sources of RGA's
liquidity include proceeds from its capital raising efforts, interest income on
undeployed corporate investments, interest income received on surplus notes with
two operating subsidiaries, and dividends from operating subsidiaries. As the
Company continues its expansion efforts, RGA will continue to be dependent on
these sources of liquidity.
Cash Flows
The Company's net cash flows from operating activities for the periods ended
June 30, 2004 and 2003 were $352.1 million and $172.0 million, respectively.
Cash flows from operating activities are affected by the timing of premiums
received, claims paid, and working capital changes. The Company believes the
short-term cash requirements of its business operations will be sufficiently met
by the positive cash flows generated. Additionally, the Company maintains a high
quality fixed maturity portfolio with good liquidity characteristics. These
securities are available for sale and generally can be easily sold to meet the
Company's obligations, if necessary.
20
Net cash used in investing activities was $366.4 million and $312.3 million in
2004 and 2003, respectively. Changes in cash provided by investing activities
primarily relate to the management of the Company's investment portfolios and
the investment of excess capital generated by operating and financing
activities.
Net cash provided by financing activities was $57.6 million and $206.4 million
in 2004 and 2003, respectively. Changes in cash provided by financing activities
primarily relate to the issuance of equity or debt securities, borrowings or
payments under the Company's existing credit agreements, treasury stock
activity, and excess deposits or withdrawals under investment type contracts.
Debt and Preferred Securities
Certain of the Company's debt agreements contain financial covenant restrictions
related to, among others, liens, the issuance and disposition of stock of
restricted subsidiaries, minimum requirements of net worth ranging from $600
million to $700 million, and minimum rating requirements. A material ongoing
covenant default could require immediate payment of the amount due, including
principal, under the various agreements. Additionally, the Company's debt
agreements contain cross-default covenants, which would make outstanding
borrowings immediately payable in the event of a material uncured covenant
default under any of the agreements, including, but not limited to, non-payment
of indebtedness when due for amounts greater than $10 million or $25 million
depending on the agreement, bankruptcy proceedings, and any event which results
in the acceleration of the maturity of indebtedness. As of June 30, 2004, the
Company had $401.4 million in outstanding borrowings under its debt agreements
and was in compliance with all covenants under those agreements.
The Company's U.S. credit facility expires in May 2006 and has a total capacity
of $175.0 million. The Company generally may not pay dividends under the credit
agreement unless, at the time of declaration and payment, a default would not
exist under the agreement. As of June 30, 2004, the Company had $50.0 million
outstanding under this facility and the average interest rate on all long-term
debt outstanding, excluding the Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely junior subordinated
debentures of the Company ("Trust Preferred Securities"), was 6.14%. Interest is
expensed on the face amount, or $225.0 million, of the Trust Preferred
Securities at a rate of 5.75%.
Statutory Dividend Limitations
The ability of the Company to make principal and interest payments depends
primarily on the earnings and surplus of its subsidiaries, investment earnings
on undeployed capital proceeds, and the Company's ability to raise additional
funds. At June 30, 2004, Reinsurance Company of Missouri, Incorporated ("RCM")
and RGA Canada had statutory capital and surplus of $779.8 million and $235.5
million, respectively. RCM's primary asset is its investment in RGA Reinsurance
Company, the Company's principal operating subsidiary based in Missouri. The
transfer of funds from the subsidiaries to RGA is subject to applicable
insurance laws and regulations. The Company expects any future increases in
liquidity needs due to treaty recaptures, relatively large policy loans or
unanticipated material claims levels would be met first by operating cash flows
and then by selling fixed-income securities or short-term investments.
Future Liquidity and Capital Needs
During the first quarter of 2004, RGA Reinsurance Company became a member of the
Federal Home Loan Bank of Des Moines ("FHLB"). One of the benefits of being a
member is the ability to borrow money on short notice by pledging investments.
As of June 30, 2004, the Company had no outstanding borrowing from or assets
pledged to the FHLB. Based on the historic cash flows and the current financial
results of the Company, subject to any dividend limitations which may be imposed
by various insurance regulations, management believes RGA's cash flows from
operating activities, together with undeployed proceeds from its capital raising
efforts, including interest and investment income on those proceeds, interest
income received on surplus notes with two operating subsidiaries, and its
ability to raise funds in the capital markets, will be sufficient to enable RGA
to make dividend payments to its shareholders, to make interest payments on its
senior indebtedness and junior subordinated notes, to repurchase RGA common
stock under the plan approved by the board of directors, and to meet its other
obligations.
A general economic downturn or a downturn in the equity and other capital
markets could adversely affect the market for many annuity and life insurance
products. Because the Company obtains substantially all of its revenues through
reinsurance arrangements that cover a portfolio of life insurance products, as
well as annuities, its business would be harmed if the market for annuities or
life insurance were adversely affected.
21
INVESTMENTS
The Company had total cash and invested assets of $9.5 billion and $7.8 billion
at June 30, 2004 and 2003, respectively. All investments made by RGA and its
subsidiaries conform to the qualitative and quantitative limits prescribed by
the applicable jurisdiction's insurance laws and regulations. In addition, the
Boards of Directors of the various operating companies periodically review the
investment portfolios of their respective subsidiaries. The RGA Board of
Directors also receives reports on material investment portfolios. The Company's
investment strategy is to maintain a predominantly investment-grade, fixed
maturity portfolio, to provide adequate liquidity for expected reinsurance
obligations, and to maximize total return through prudent asset management. The
Company's earned yield on invested assets, excluding funds withheld, was 5.79%
during the second quarter of 2004, compared with 6.67% for the second quarter of
2003. See "Note 5 - INVESTMENTS" in the Notes to Consolidated Financial
Statements of the 2003 Annual Report for additional information regarding the
Company's investments.
The Company's fixed maturity securities are invested primarily in commercial and
industrial bonds, public utilities, U.S. and Canadian government securities, as
well as mortgage and asset-backed securities. As of June 30, 2004, approximately
98% of the Company's consolidated investment portfolio of fixed maturity
securities was investment-grade. Important factors in the selection of
investments include diversification, quality, yield, total rate of return
potential, and call protection. The relative importance of these factors is
determined by market conditions and the underlying product or portfolio
characteristics. Cash equivalents are invested in high-grade money market
instruments. The largest asset class in which fixed maturities were invested was
in corporate securities, including commercial, industrial, finance and utility
bonds, which represented approximately 44.7% and 39.7% of fixed maturity
securities as of June 30, 2004 and 2003, respectively. These corporate
securities had an average Standard and Poor's ("S&P") rating of "A" at June 30,
2004.
Within the fixed maturity security portfolio, the Company holds approximately
$75.5 million in asset-backed securities at June 30, 2004, which include credit
card and automobile receivables, home equity loans and collateralized bond
obligations. The Company's asset-backed securities are diversified by issuer and
contain both floating and fixed rate securities. In addition to the risks
associated with floating rate securities, principal risks in holding
asset-backed securities are structural, credit and capital market risks.
Structural risks include the securities priority in the issuer's capital
structure, the adequacy of and ability to realize proceeds from collateral, and
the potential for prepayments. Credit risks include consumer or corporate
credits such as credit card holders, equipment lessees, and corporate obligors.
Capital market risks include general level of interest rates and the liquidity
for these securities in the marketplace.
The Company monitors its fixed maturity securities to determine impairments in
value. In conjunction with its external investment managers, the Company
evaluates factors such as financial condition of the issuer, payment
performance, the length of time and the extent to which the market value has
been below amortized cost, compliance with covenants, general market conditions
and industry sector, intent and ability to hold securities, and various other
subjective factors. Based on management's judgment, securities determined to
have an other-than-temporary impairment in value are written down to fair value.
The Company recorded other-than-temporary write-downs of $0.1 million and $11.9
million for the six months ending June 30, 2004 and 2003, respectively. The
circumstances that gave rise to the impairments during 2003 were the
deterioration in financial condition of one issuer and decline in collateral
value supporting two asset-backed securities. During 2004, the Company sold
fixed maturity securities with a fair value of $162.0 million at a net loss of
$7.7 million.
The following table presents the total gross unrealized losses for 820 fixed
maturity securities where the estimated fair value had declined and remained
below amortized cost by the indicated amount (in thousands):
At June 30, 2004
----------------------------------
Gross Unrealized
Losses % of Total
------ ----------
Less than 20% $76,348 100%
20% or more for less than six months - -%
20% or more for six months or greater - -%
------- ---
Total $76,348 100%
22
While all of these securities are monitored for potential impairment, the
Company's experience indicates that the first two categories do not present as
great a risk of impairment, and often, fair values recover over time. These
securities have generally been adversely affected by overall economic
conditions, primarily an increase in the interest rate environment.
The following table presents the estimated fair values and gross unrealized
losses for the 820 fixed maturity securities that have estimated fair values
below amortized cost as of June 30, 2004. These investments are presented by
class and grade of security, as well as the length of time the related market
value has remained below amortized cost.
AS OF JUNE 30, 2004
-------------------------------------------------------------------------------------------
EQUAL TO OR GREATER THAN
LESS THAN 12 MONTHS 12 MONTHS TOTAL
---------------------------- ---------------------------- -----------------------------
Estimated Gross Estimated Gross Estimated Gross
(in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss
---------- --------------- ---------- --------------- ---------- ---------------
INVESTMENT GRADE SECURITIES:
COMMERCIAL AND INDUSTRIAL $ 642,752 $ 24,904 $ 5,413 $ 587 $ 648,165 $ 25,491
PUBLIC UTILITIES 304,153 12,693 - - 304,153 12,693
ASSET-BACKED SECURITIES 34,298 533 2,280 204 36,578 737
CANADIAN AND CANADIAN PROVINCIAL
GOVERNMENTS 87,722 5,366 - - 87,722 5,366
MORTGAGE-BACKED SECURITIES 71,030 1,162 4,327 197 75,357 1,359
FINANCE 247,071 11,161 15,322 735 262,393 11,896
U.S. GOVERNMENT AND AGENCIES 610,818 15,909 - - 610,818 15,909
FOREIGN GOVERNMENTS 119,976 2,117 - - 119,976 2,117
---------- ---------- ---------- ---------- ---------- ----------
INVESTMENT GRADE SECURITIES 2,117,820 73,845 27,342 1,723 2,145,162 75,568
---------- ---------- ---------- ---------- ---------- ----------
NON-INVESTMENT GRADE SECURITIES:
COMMERCIAL AND INDUSTRIAL 10,826 444 - - 10,826 444
PUBLIC UTILITIES 8,878 336 - - 8,878 336
---------- ---------- ---------- ---------- ---------- ----------
NON-INVESTMENT GRADE SECURITIES 19,704 780 - - 19,704 780
---------- ---------- ---------- ---------- ---------- ----------
TOTAL $2,137,524 $ 74,625 $ 27,342 $ 1,723 $2,164,866 $ 76,348
========== ========== ========== ========== ========== ==========
The Company believes that the analysis of each security whose price has been
below market for greater than twelve months indicated that the financial
strength, liquidity, leverage, future outlook and/or recent management actions
support the view that the security was not other-than-temporarily impaired as of
June 30, 2004. The unrealized losses did not exceed 6% on an individual security
basis and are primarily a result of rising interest rates, changes in credit
spreads and the long-dated maturities of the securities. Additionally, 99% of
the gross unrealized losses are associated with investment grade securities.
The Company's mortgage loan portfolio consists principally of investments in
U.S.-based commercial offices and retail locations. The mortgage loan portfolio
is diversified by geographic region and property type. All mortgage loans are
performing and no valuation allowance has been established as of June 30, 2004.
Policy loans present no credit risk because the amount of the loan cannot exceed
the obligation due the ceding company upon the death of the insured or surrender
of the underlying policy. The provisions of the treaties in force and the
underlying policies determine the policy loan interest rates. Because policy
loans represent premature distributions of policy liabilities, they have the
effect of reducing future disintermediation risk. In addition, the Company earns
a spread between the interest rate earned on policy loans and the interest rate
credited to corresponding liabilities.
Funds withheld at interest comprised approximately 31.8% and 30.3% of the
Company's cash and invested assets as of June 30, 2004 and December 31, 2003,
respectively. For agreements written on a modified coinsurance basis and certain
agreements written on a coinsurance basis, assets equal to the net statutory
reserves are withheld and legally owned and managed by the ceding company, and
are reflected as funds withheld at interest on RGA's balance sheet. In the event
of a ceding company's insolvency, RGA would need to assert a claim on the assets
supporting its reserve liabilities. However, the risk of loss to RGA is
mitigated by its ability to offset amounts it owes the ceding company for claims
or allowances with amounts owed to RGA from the ceding company. Interest accrues
to these assets at rates defined by the treaty terms. The Company is subject to
the investment performance on the withheld assets, although it does not directly
control them. These assets are primarily fixed maturity investment securities
and pose risks similar to the fixed maturity securities the Company owns. To
mitigate this risk, the Company helps set
23
the investment guidelines followed by the ceding company and monitors
compliance. Ceding companies with funds withheld at interest had a minimum A.M.
Best rating of "A-".
CONTRACTUAL OBLIGATIONS
The following table displays the Company's contractual obligations that
have materially changed since December 31, 2003 (in millions):
Payment Due by Period
---------------------------------------------------------------------------
Less than
Contractual Obligations: Total 1 Year 1 - 3 Years 4 - 5 Years After 5 Years
- ------------------------ -------- --------- ----------- ----------- -------------
Long - term debt $ 401.4 $ 27.3 $ 174.2 $ - $ 199.9
Life claims payable(1) $ 620.9 $ 620.9 $ - $ - $ -
-------- -------- -------- -------- --------
(1) Included in the Other policy claims and benefits line item in the condensed
consolidated balance sheet.
A significant portion of the Company's insurance liabilities, including most
future policy benefits, are excluded from this table because such amounts and/or
their timing are inherently subjective.
COUNTERPARTY RISK
In the normal course of business, the Company seeks to limit its exposure to
reinsurance contracts by ceding a portion of the reinsurance to other insurance
companies or reinsurers. Should a counterparty not be able to fulfill its
obligation to the Company under a reinsurance agreement, the impact could be
material to the Company's financial condition and results of operations.
MARKET RISK
Market risk is the risk of loss that may occur when fluctuations in interest and
currency exchange rates and equity and commodity prices change the value of a
financial instrument. Both derivative and nonderivative financial instruments
have market risk so the Company's risk management extends beyond derivatives to
encompass all financial instruments held that are sensitive to market risk. RGA
is primarily exposed to interest rate risk and foreign currency risk.
Interest Rate Risk arises from many of the Company's primary activities, as the
Company invests substantial funds in interest-sensitive assets and also has
certain interest-sensitive contract liabilities. The Company manages interest
rate risk and credit risk to maximize the return on the Company's capital
effectively and to preserve the value created by its business operations. As
such, certain management monitoring processes are designed to minimize the
impact of sudden and sustained changes in interest rates on fair value, cash
flows, and net interest income.
The Company is subject to foreign currency translation, transaction, and net
income exposure. The Company generally does not hedge the foreign currency
translation exposure related to its investment in foreign subsidiaries as it
views these investments to be long-term. Translation differences resulting from
translating foreign subsidiary balances to U.S. dollars are reflected in equity.
The Company generally does not hedge the foreign currency exposure of its
subsidiaries transacting business in currencies other than their functional
currency (transaction exposure).
There has been no significant change in the Company's quantitative or
qualitative aspects of market risk during the quarter ended June 30, 2004 from
that disclosed in the 2003 Annual Report.
NEW ACCOUNTING STANDARDS
In March 2004, the Emerging Issues Task Force ("EITF") reached further consensus
on Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments" ("EITF 03-1"). EITF 03-1 provides accounting
guidance regarding the determination of when an impairment of debt and
marketable equity securities and investments accounted for under the cost method
should be considered other-than-temporary and recognized in income. An EITF 03-1
consensus reached in December 2003 also requires certain quantitative and
qualitative disclosures for debt and marketable equity securities classified as
available-for-sale or held-to-maturity under SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, that are impaired at the
24
balance sheet date but for which an other-than-temporary impairment has not been
recognized. The disclosure requirements of EITF 03-1 were effective December 31,
2003. The accounting guidance of EITF 03-1 will be effective in the third
quarter of 2004 and is not expected to have a material impact on the Company's
consolidated financial statements.
In March 2004, the EITF reached consensuses on Issue No. 03-6, "Participating
Securities and the Two-Class Method under FASB Statement No. 128" ("EITF 03-6").
EITF 03-6 provides guidance in determining whether a security should be
considered a participating security for purposes of computing earnings per share
and how earnings should be allocated to the participating security. EITF 03-6,
which was effective for the Company in the second quarter of 2004, did not have
an impact on the Company's earnings per share calculations.
In March 2004, the EITF reached consensus on Issue No. 03-16, "Accounting for
Investments in Limited Liability Companies" ("EITF 03-16"). EITF 03-16 provides
guidance regarding whether a limited liability company should be viewed as
similar to a corporation or similar to a partnership for purposes of determining
whether a noncontrolling investment should be accounted for using the cost
method or the equity method of accounting. EITF 03-16, which will be effective
in the third quarter of 2004, is not expected to have a material impact on the
Company's unaudited interim condensed consolidated financial statements.
In July 2003, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts." SOP
03-1 provides guidance on separate account presentation and valuation, the
accounting for sales inducements and the classification and valuation of
long-duration contract liabilities. The Company adopted the provisions of SOP
03-1 on January 1, 2004, recording a charge of $361 thousand, net of income
taxes.
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"),
an interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," which requires the consolidation by a business enterprise
of variable interest entities if the business enterprise is the primary
beneficiary. FIN 46 was effective January 31, 2003, for the Company with respect
to interests in variable interest entities obtained after that date. With
respect to interests in variable interest entities existing prior to February 1,
2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), which
extended the effective date of FIN 46 to the period ending March 31, 2004. The
Company adopted the provisions of FIN 46 as of March 31, 2004 and is not
required to consolidate any material interests in variable interest entities.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This Quarterly Report on Form 10-Q 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 (referred 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 and valuations 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 and actions taken by
governments 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
25
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 ("SEC").
Forward-looking statements should be evaluated together with the many risks and
uncertainties that affect our business, including those mentioned in this
document and the cautionary statements described in the periodic reports we file
with the SEC. 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. For a
discussion of these risks and uncertainties that could cause actual results to
differ materially from those contained in the forward-looking statements, you
are advised to consult the sections named "Risk Factors" and "Cautionary
Statement Regarding Forward-Looking Statements" contained in our Registration
Statement on Form S-3, as amended, filed with the SEC on July 9, 2004.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - - Market Risk" which is incorporated by reference
herein.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management, including the
Chief Executive Officer and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures with respect to the information generated for use in this
Quarterly Report. Based upon, and as of the date of that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the disclosure
controls and procedures were effective to provide reasonable assurance that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 are recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.
There was no change in the Company's internal control over financial reporting
during the quarter ended June 30, 2004, that has materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.
26
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The Company is currently a party to various litigation and arbitrations that
involve medical reinsurance arrangements, personal accident business, and
aviation bodily injury carve-out business. As of June 30, 2004, the ceding
companies involved in these disputes have raised claims, or established reserves
that may result in claims, that are $91.6 million in excess of the amounts held
in reserve by the Company. The Company generally has little information
regarding any reserves established by the ceding companies, and it is possible
that any such reserves could be increased in the future. The Company believes it
has substantial defenses upon which to contest these claims, including but not
limited to misrepresentation and breach of contract by direct and indirect
ceding companies. In addition, the Company is in the process of auditing ceding
companies that have indicated that they anticipate asserting claims in the
future against the Company that are $16.6 million in excess of the amounts held
in reserve by the Company. Depending upon the audit findings in these cases,
they could result in litigation or arbitrations in the future. See Note 21,
"Discontinued Operations," in the Company's 2003 Annual Report for more
information. Additionally, from time to time, the Company is subject to
litigation and arbitration related to its life reinsurance business and to
employment-related matters in the normal course of its business. While it is not
feasible to predict or determine the ultimate outcome of the pending litigation
or arbitrations or provide reasonable ranges of potential losses, it is the
opinion of management, after consultation with counsel, that their outcomes,
after consideration of the provisions made in the Company's consolidated
financial statements, would not have a material adverse effect on its
consolidated financial position.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Under a Board of Directors approved plan, the Company may purchase at its
discretion up to $50 million of its common stock on the open market. As of June
30, 2004, the Company had purchased 225,500 shares of treasury stock under this
program at an aggregate price of $6.6 million. All purchases were made during
2002. The Company generally uses treasury shares to support the future exercise
of options granted under its stock option plans.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 26, 2004. At the
Annual Meeting, the following proposals were voted upon by the shareholders as
indicated below: (1) Election of the following Directors:
Directors Voted For Withheld
--------- --------- --------
William J. Bartlett 59,342,143 1,070,529
Alan C. Henderson 59,242,725 1,169,947
A. Greig Woodring 48,122,735 12,289,937
Voted For Voted Against Abstain
--------- ------------- -------
(2) Proposal to amend to the Company's Second Restated Articles of
Incorporation to increase the number of outstanding shares 58,306,107 2,048,580 57,985
(3) Proposal to amend the Articles of Incorporation
to delete Section D and renumber Section E 60,323,068 13,612 75,992
(4) Proposal to amend Section A of Article Six of the Articles of
Incorporation regarding the number of directors 59,950,425 386,797 75,450
27
(5) Proposal to amend Sections C of Article Six and Section B of
Article Nine of the Articles of Incorporation regarding
advance notice of nominations and proposals 42,367,051 15,690,082 87,981
(6) Proposal to amend the Articles of Incorporation adding new
Article Thirteen 59,778,535 547,498 86,639
(7) Proposal to authorize the sale of certain types of securities
from time to time to MetLife, Inc. or its affiliates 42,212,315 15,856,085 76,714
(8) Proposal to amend the Company's Flexible Stock Plan 59,560,054 520,218 332,400
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) See index to exhibits.
(b) The following reports on Form 8-K were filed or furnished with the
Securities and Exchange Commission during the quarter ended June 30, 2004:
1. The Company filed a Current Report on Form 8-K dated April 29, 2004,
furnishing, under Items 9 and 12, its press release discussing
results of operations for the three months ended March 31, 2004. The
press release was attached thereto as Exhibit 99.1.
2. The Company filed a Current Report on Form 8-K dated May 26, 2004,
disclosing, under Items 5 and 7, certain voting results from its
annual meeting. The Company's restated articles of incorporation
were attached thereto as Exhibit 3.1.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Reinsurance Group of America, Incorporated
By: /s/ A. Greig Woodring August 5, 2004
----------------------------------------
A. Greig Woodring
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Jack B. Lay August 5, 2004
----------------------------------------
Jack B. Lay
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
29
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1 Master Agreement by and between Allianz Life Insurance of North
America and RGA Reinsurance Company, incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K filed on October 9, 2003
(file no. 1-11848).
2.2 Life Coinsurance Retrocession Agreement by and between Allianz Life
Insurance of North America and RGA Reinsurance Company, incorporated
by reference to Exhibit 2.2 to Current Report on Form 8-K filed on
October 9, 2003 (file no. 1-11848).
3.1 Restated Articles of Incorporation, incorporated by reference to
Exhibit 3.1 of Current Report on Form 8-K filed June 30, 2004.
3.2 Bylaws of RGA, as amended, effective May 26, 2004.
10.1 Third Amendment effective as of May 26, 2004 to the RGA Flexible Stock
Plan, as amended and restated July 1, 1998
31.1 Certification of Chief Executive Officer pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to section 906 of
the Sarbanes-Oxley Act of 2002
30
Exhibit 3.2
REINSURANCE GROUP OF AMERICA, INCORPORATED
AMENDED AND RESTATED BYLAWS
EFFECTIVE AS OF MAY 26, 2004
ARTICLE I. OFFICES
The Corporation may have such corporate offices either in or outside
of Missouri, as the Board of Directors may from time to time appoint, or as the
business of the Corporation may require. The "principal" office may be
designated by the Board of Directors but the location of the Corporation in
Missouri shall for all purposes be deemed to be in the city or county in which
the "registered" office is maintained. The registered office shall be determined
from time to time by the Board of Directors and its identity put on file with
the appropriate office of the State of Missouri.
ARTICLE II. SHAREHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the shareholders
shall be held on the fourth Wednesday in May in each year, if not a legal
holiday, and if a legal holiday, then on the next day not a legal holiday. The
day fixed for the annual meeting may be changed in any year, by resolution of
the Board of Directors, to another day, not a legal holiday, that the Board of
Directors deems appropriate, but this power is subject to applicable limitations
of law. At this meeting members of the Board of Directors shall be elected to
succeed those whose terms are then expiring and such other business shall be
transacted as may properly be brought before the meeting.
SECTION 2. Special Meetings. Special meetings of the shareholders,
unless otherwise prescribed by statute or by the Articles of Incorporation, may
only be called by the Chairman of the Board of Directors or by the President or
by a majority of the entire number of the Board of Directors. The person or
persons requesting a special meeting of the shareholders shall deliver to the
Secretary of the Corporation a written request stating the purpose of the
proposed meeting. Upon such request, subject to any requirements or limitations
imposed by the Corporation's Articles of Incorporation, by these Bylaws, or by
law, it shall be the duty of the Secretary to call a special meeting of the
shareholders, to be held at such time as is specified in the request.
SECTION 3. Place and Hour of Meeting. Every meeting of the
shareholders, whether an annual or special meeting, shall be held at 2:00 p.m.
central standard time at the principal office of the Corporation or at such
other place or time as is specified by proper notice from the Board of Directors
and shall continue until declared adjourned by a vote of the shareholders
present or by the presiding officer.
SECTION 4. Notice of Meeting. Written or printed notice of each
meeting of shareholders stating the place, day and hour of the meeting, and in
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than 10 nor more than 70 days before the
date of the meeting either personally, by mail, by facsimile or by
electronic transmission, by or at the direction of the President, or the
Secretary, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the shareholder at his address as it appears on the
stock transfer books of the Corporation, with postage thereon prepaid. If given
by facsimile or by electronic transmission, such notice shall be deemed to be
delivered when transmitted. Attendance of a shareholder at any meeting shall
constitute waiver of notice of that meeting except when a shareholder attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent or other agent of the Corporation that the notice has been given,
whether by a form of electronic transmission or otherwise, shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
For purposes of these Bylaws, written notice shall include, but not
be limited to, notice by "electronic transmission," which shall mean any process
of communication not directly involving the physical transfer of paper that is
suitable for the retention, retrieval and reproduction of information by the
recipient.
SECTION 5. Quorum; Adjournment; Postponement. Except as otherwise
required by law, the Articles of Incorporation or these Bylaws, a majority of
the outstanding shares of the Corporation entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of shareholders. The
shareholders present at a meeting at which a quorum is present may continue to
transact business until adjournment, notwithstanding the withdrawal of such
number of shareholders as to reduce the remaining shareholders to less than a
quorum.
Whether or not a quorum is present, the presiding officer of the
meeting or shareholders holding at least a majority of the outstanding shares
represented at a meeting shall have the power, except as otherwise provided by
statute, successively to adjourn the meeting to such time and place as they may
determine, to a specified date not longer than ninety days after such
adjournment without further notice, if the time and place of the adjourned
meeting are announced at the meeting at which the adjournment is taken. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally set forth. If the adjournment is for more than ninety days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the place, date and time of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting.
A shareholder's meeting may be postponed by resolution of the Board
of Directors to a specified date up to a date ninety days after such
postponement or to another place, provided notice of the place, date and time of
the postponed meeting, which may be made by public notice, is given to each
shareholder of record entitled to vote at the meeting prior to the date
previously scheduled for the meeting.
2
For purposes of these Bylaws, "adjournment" means a delay in the
date, which may also be combined with a change in the place, of a meeting after
the meeting has been convened; "postponement" means a delay in the date, which
may be combined with a change in the place, of the meeting before it has been
convened, but after the time and place thereof have been set forth in a notice
delivered or given to shareholders; and public notice shall be deemed to have
been given if a public announcement is made by press release reported by a
national news service or in a publicly available document filed with the
Securities and Exchange Commission ("SEC").
SECTION 6. List of Shareholders Entitled to Vote. At least ten days
before each meeting of the shareholders, a complete list of the shareholders
entitled to vote at such meeting shall be prepared and arranged in alphabetical
order with the address of each shareholder and the number of shares held by
each, which list, for a period of ten days prior to such meeting, shall be kept
on file at the registered office of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting, and
shall be subject to the inspection of any shareholder during the whole time of
the meeting. The original share ledger or transfer book, or a duplicate thereof
kept in the State of Missouri, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of the shareholders. Failure to comply with the above
requirements in respect of lists of shareholders shall not affect the validity
of any action taken at such meeting.
SECTION 7. Proxies. At all meetings of shareholders, a shareholder
may vote in person or by proxy executed in writing by the shareholder or by his
duly authorized attorney in fact. Such proxy shall be filed with the Secretary
of the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided in
the proxy. Without limiting the manner in which a shareholder may authorize a
person to act for the shareholder as proxy, the following shall constitute a
valid means by which a shareholder may grant such authority:
(1) A shareholder or the shareholder's duly authorized
attorney-in-fact may execute a writing authorizing another person to act for the
shareholder as proxy. Execution may be accomplished by the shareholder or duly
authorized attorney-in-fact signing such writing or causing the shareholder's
signature to be affixed to such writing by any reasonable means, including, but
not limited to, facsimile signature.
(2) A shareholder may authorize another person to act for the
shareholder as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, facsimile or other means of electronic transmission, or by
telephone, to the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram, facsimile or other
means of electronic transmission, or telephonic transmission, shall either set
forth or be submitted with information from which it can be determined that the
telegram, cablegram, facsimile or other electronic transmission, or telephonic
transmission, was authorized by the shareholder. If it is determined that such
telegrams, cablegrams, facsimiles or other electronic transmissions, or
telephonic transmissions,
3
are valid, the inspectors or, if there are no inspectors, such other persons
making such determination shall specify the information upon which they relied.
SECTION 8. Voting of Shares. Subject to the rights of any holders of
preferred stock, each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote at a meeting of shareholders.
Provided a quorum is present, the affirmative vote of a majority of the shares
represented at a meeting and entitled to vote shall be the act of the
shareholders unless the vote of a greater number of shares is required by the
Corporation's Articles of Incorporation, by these Bylaws, or by law.
SECTION 9. Voting of Shares by Certain Holders. Shares standing in
the name of another corporation may be voted by such officer, agent, or proxy as
the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian, or conservator
may be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock held by the Corporation, and unissued
shares, shall not be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Shares owned by a subsidiary of the Corporation shall likewise not be voted or
counted in determining the number of shares outstanding.
SECTION 10. Informal Action by Shareholders. Unless otherwise
prescribed by the Corporation's Articles of Incorporation, any action which is
required or allowed to be taken at a meeting of the shareholders, may be taken
without a meeting only if consents or approvals in writing, setting forth the
action so taken, shall be signed by all of the shareholders entitled to vote
with respect to the subject matter thereof.
SECTION 11. Advance Notice of Nominations and Shareholder Proposals.
(1) Only such persons who are nominated in accordance with the
procedures set forth in Section C of Article Six of the Articles of
Incorporation shall be eligible to serve as Directors and only such business
shall be conducted at a meeting of shareholders as shall have
4
been brought before the meeting in accordance with the procedures set forth in
Section B of Article Nine of the Articles of Incorporation. The Board of
Directors may reject any nomination or shareholder proposal submitted for
consideration at any meeting of shareholders which is not made in accordance
with the provisions of the Articles of Incorporation or which is not a proper
subject for shareholder action in accordance with provisions of applicable law.
Alternatively, if the Board of Directors fails to consider the validity of any
nomination or shareholder proposal, the presiding officer of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
requirements set forth in the Articles of Incorporation and is a proper subject
for shareholder action in accordance with provisions of applicable law and, if
any proposed nomination or business is not in compliance with the Articles of
Incorporation or not a proper subject for shareholder action, to declare that
such defective nomination or proposal be disregarded. The presiding officer of
the meeting shall have sole, absolute and complete authority and discretion to
decide questions of compliance with the foregoing procedures, and his or her
ruling thereon shall be final and conclusive. This provision shall not prevent
the consideration and approval or disapproval at the meeting of reports of
officers, Directors and committees of the Board of Directors, but, in connection
with such reports, no new business shall be acted upon at the meeting unless
stated, submitted and received as herein provided.
(2) Notwithstanding the provisions of Section C of Article Six or
Section B of Article Nine of the Articles of Incorporation or the foregoing
provisions of this Section 11 of Article II, if the shareholder (or a qualified
representative of the shareholder) does not appear at the applicable meeting of
shareholders of the Corporation to present such nomination or propose such
business, such nomination shall be disregarded and such proposed business shall
not be transacted, notwithstanding that proxies in respect of such vote may have
been received by the Corporation.
(3) Notwithstanding the provisions of Section C of Article Six or
Section B of Article Nine of the Articles of Incorporation or the foregoing
provisions of this Section 11 of Article II, a shareholder shall also comply
with all applicable requirements of state law and of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Section 11 of Article II. Nothing in Section C of Article Six or Section B of
Article Nine of the Articles of Incorporation or this Section 11 of Article II
shall be deemed to affect any rights of shareholders to request inclusion of
proposals in, or the Corporation's right to omit proposals from, the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
any successor provision. The provisions of Section C of Article Six or Section B
of Article Nine of the Articles of Incorporation shall also govern what
constitutes timely notice for purposes of Rule 14a-4(c) under the Exchange Act
or any successor provision.
SECTION 12 Organization. (a) Meetings of shareholders shall be
presided over by the Chairman of the Board of Directors, if any, or in his or
her absence by the Chief Executive Officer, if any, or in his or her absence by
a chairman of the meeting, which chairman must be an Officer or Director of the
Corporation and must be designated as chairman of the meeting by the Board of
Directors. The Secretary, or in his or her absence an Assistant Secretary, or in
his or her absence a person whom the person presiding over the meeting shall
appoint, shall act as secretary of the meeting and keep a record of the
proceedings thereof.
5
(b) The Board shall be entitled to make such rules or regulations for the
conduct of meetings of shareholders as it shall deem appropriate. Subject to
such rules and regulations of the Board, if any, the person presiding over the
meeting shall have the right and authority to convene and adjourn the meeting,
to prescribe such rules, regulations and procedures and to do all such acts as,
in the judgment of the person presiding over the meeting, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to shareholders of
record of the Corporation and their duly authorized and constituted proxies and
such other persons as the person presiding over the meeting shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the voting or balloting, as applicable,
including, without limitation, matters which are to be voted on by ballot, if
any. The presiding officer of the meeting shall have sole, absolute and complete
authority and discretion to decide questions of compliance with the foregoing
procedures, and his or her ruling thereon shall be final and conclusive. The
person presiding over the meeting, in addition to making any other
determinations that may be appropriate to the conduct of the meeting, shall, if
the facts warrant, determine and declare to the meeting that a matter or
business was not properly brought before the meeting and if the person presiding
over the meeting should so determine and declare, any such matter or business
shall not be transacted or considered. Unless and to the extent determined by
the Board or the person presiding over the meeting, meetings of shareholders
shall not be required to be held in accordance with rules of parliamentary
procedure.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors.
SECTION 2. Number and Tenure. The number of Directors of the
Corporation shall consist of such number of Directors as the Board of Directors
may from time to time determine; provided, however, that in no event shall the
number of Directors be less than three; provided further, that except as
otherwise specified in the Corporation's Articles of Incorporation, the number
of Directors may be amended by affirmative vote of a majority of the Board of
Directors from time to time. The Board of Directors shall be divided into three
classes, as nearly equal in number as possible. In the event of any increase in
the number of Directors, any additional Directors shall be added to such classes
as may be necessary so that all classes shall be as nearly equal in number as
possible. In the event of any decrease in the number of Directors, all classes
of Directors shall be decreased as nearly equally as may be possible. No
reduction in the number of Directors shall affect the term of office of any
incumbent Director. Subject to the foregoing, the Board of Directors shall
determine the class or classes to which any additional Directors shall be added
and the class or classes which shall be decreased in the event of any decrease
in the number of Directors. At each annual meeting, Directors shall be elected
to hold office for a term of three years, and at each annual meeting of
shareholders, the successors to the class of Directors whose terms shall then
expire shall be elected for a term expiring at the third succeeding annual
meeting after that election. Notwithstanding the foregoing, each
6
Director shall hold office until his successor shall have been elected and
qualified or, in the case of a Director elected by the Board to increase the
number of Directors as provided in Section 13 below, until the next annual
meeting of the shareholders.
SECTION 3. Qualifications. No person shall be qualified to be
elected and to hold office as a Director if such person is determined by a
majority of the entire Board of Directors to have acted in a manner contrary to
the best interests of the Corporation, including, but not limited to, the
violation of federal or state law, maintenance of interests not properly
authorized and in conflict with the interests of the Corporation or breach of
any agreement between that Director and the Corporation relating to his or her
services as a Director, employee, or agent of the Corporation. A Director need
not be a resident of the State of Missouri or a shareholder.
SECTION 4. Directors Emeritus and Advisory Directors. The Board of
Directors may from time to time create one or more positions of Director
Emeritus and Advisory Director, and may fill such position or positions for such
terms as the Board of Directors deems proper. Each Director Emeritus and
Advisory Director shall, upon the invitation of the Board of Directors, have the
privilege of attending meetings of the Board of Directors but shall do so solely
as an observer. Notice of meetings of the Board of Directors to a Director
Emeritus or Advisory Director shall not be required under any applicable law,
the Articles of Incorporation, or these Bylaws. Each Director Emeritus and
Advisory Director shall be entitled to receive such compensation as may be fixed
from time to time by the Board of Directors. No Director Emeritus or Advisory
Director shall be entitled to vote on any business coming before the Board of
Directors, nor shall he or she be counted as members of the Board of Directors
for the purpose of determining the number of Directors necessary to constitute a
quorum, for the purpose of determining whether a quorum is present, or for any
other purpose whatsoever. In the case of a Director Emeritus or Advisory
Director, the occurrence of any event which in the case of a Director would
create a vacancy on the Board of Directors, shall be deemed to create a vacancy
in such position; but the Board of Directors may declare the position terminated
until such time as the Board of Directors shall again deem it proper to create
and to fill the position.
SECTION 5. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. At such meeting
the Board may elect one of their members to act as Chairman of the Board. The
Board of Directors may provide, by resolution naming the time and place, for the
holding of additional regular meetings, within or without the State of Missouri,
without other notice than such resolution. Any business may be transacted at a
regular meeting.
SECTION 6. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, the
President, or any two Directors. Any such special meeting shall be held at the
place set out in the resolution for regular meetings or at the registered office
of the corporation in Missouri if no such regular meeting place has been set or
at such other place, within or without the State of Missouri, as may be
specified in the notice of such special meeting.
7
SECTION 7. Conduct of Meetings. Directors may participate in any
meeting of the Board of Directors, or of any committee of the Board of
Directors, by means of conference telephone or similar communications equipment
whereby all persons participating in the meeting can hear each other, and
participation in a meeting in this manner shall constitute presence in person at
the meeting.
SECTION 8. Notice. Notice of any special meeting shall be given at
least twenty-four hours previously thereto by written, oral, facsimile or
electronic means. If mailed, such notice shall be deemed to be delivered five
days after such notice is deposited in the United States mail, so addressed,
with postage thereon prepaid. If personally delivered or given orally, such
notice shall be deemed delivered when so delivered or communicated. If given by
facsimile or by electronic transmission, such notice shall be deemed to be
delivered when transmitted to the last known number or address furnished by the
Director. Any Director may waive notice of any meeting as to himself. The
attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except where a Director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 9. Quorum. A majority of the number of Directors in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such majority is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time. If
the meeting is adjourned for more than twenty-four (24) hours, notice of the
time and place of the adjourned meeting shall be given to the directors who were
not present at the time of the adjournment.
SECTION 10. Manner of Acting. The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless the act of a greater number is required by the
Corporation's Articles of Incorporation, by these Bylaws, or by law.
SECTION 11. Action Without a Meeting. Any action that may be taken
by the Board of Directors at a meeting may be taken without a meeting, provided
that all of the Directors sign consents setting forth the action so taken. The
written consents shall be filed with the minutes of the meetings of the Board of
Directors and shall have the same force and effect as a unanimous vote at a
meeting of Directors. This provision applies to committees of the Board of
Directors as well, which can act with the unanimous consent of all committee
members.
SECTION 12. Resignation. Any Director of the Corporation may resign
at any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board of Directors, the President, or the
Secretary of the Corporation. Any such resignation shall take effect at the time
specified therein or, if no time be specified, upon receipt thereof by the Board
of Directors or one of the above-named Officers; and, unless specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
8
SECTION 13. Vacancies. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
Directors though less than a quorum of the Board of Directors. A Director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any directorship to be filled by reason of an increase in
the number of Directors may be filled by election by the Board of Directors and
shall be added to such class of Directors as may be necessary so that all
classes of Directors shall be as nearly equal in number as possible.
SECTION 14. Compensation. Each Director may receive such
compensation and be reimbursed for expenses, if any, of attendance at each
meeting of the Board of Directors or a Committee thereof as shall be determined
by resolution of the Board of Directors. Nothing herein shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.
SECTION 15. Presumption of Assent. A Director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his or her dissent shall be entered in the minutes of the meeting or
unless he or she shall file his or her written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
SECTION 16. Indemnification of Directors and Officers. The
Corporation shall have such powers of indemnification as are provided in its
Articles of Incorporation and not inconsistent with the laws of Missouri.
SECTION 17. Executive Committee and Other Committees. The Board of
Directors may, by resolution or resolutions passed by a majority of the whole
board, designate an executive committee, such committee to consist of three or
more directors of the Corporation, which committee, to the extent provided in
said resolution or resolutions, shall have and may exercise all of the authority
of the Board of Directors in the management of the Corporation; but the
designation of such committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon the Board or a Director by the General and Business
Corporation law of Missouri.
The Board of Directors may also, by resolution or resolutions passed
by a majority of the whole board, designate other committees, with such persons,
powers, and duties as it deems desirable and as are not inconsistent with law.
SECTION 18. Meetings and Reports of Committees. A committee shall
meet from time to time on call of the chairman of the committee or of any two or
more members of the committee. Notice of each such meeting, stating the place,
date and hour thereof, shall be mailed at least five (5) days before the
meeting, or shall be served personally on each member of the committee, or
delivered orally or by facsimile or electronic transmission to his address on
the books of the Corporation, at least twenty-four (24) hours before the
meeting. No such notice
9
need state the business proposed to be transacted at the meeting. No notice of a
meeting of the committee need be given to any member who signs a waiver of
notice, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. No notice need be given of an adjourned meeting of the committee
unless the meeting is adjourned for more than twenty-four (24) hours, in which
case notice of the time and place of the adjourned meeting shall be given to the
members of the committee who were not present at the time of adjournment.
Meetings of the committee may be held at such place or places, either within or
outside of the State of Missouri, as the committee shall determine, or as may be
specified or fixed in the respective notices or waivers thereof. Vacancies in
the membership of each committee shall be filled by the Board of Directors at
any regular or special meeting of the Board of Directors. A majority of the
committee constitutes a quorum for the transaction of business. Every act or
decision done or made by a majority of the members of the committee present at a
meeting duly held at which a quorum is present shall be regarded as the act of
the committee. A committee may fix its own rules of procedure. It shall keep a
record of its proceedings and shall report these proceedings to the Board of
Directors at or prior to the regular meeting of the Board to be held next after
a committee meets.
ARTICLE IV. OFFICERS
SECTION 1. Number and Election. The officers of the Corporation
shall be a Chairman of the Board, a President, and a Secretary, each of whom
shall be elected by the Board of Directors. In addition, the Board of Directors
shall elect and appoint the senior officers of the Corporation including
Executive Vice Presidents, Senior Vice Presidents, and such other officers as
the Board of Directors may deem appropriate. The President may elect and appoint
other officers of the Corporation including Vice Presidents, a Treasurer,
assistant officers, and other junior officers. The Board of Directors shall
ratify the election and appointment of officers by the President at the first
regular meeting of the Board of Directors in each fiscal year. The same person
may hold any two or more offices, except those of President and Vice President
or President and Secretary. No officer need be a shareholder.
SECTION 2. Term of Office. Each officer shall hold office until the
first meeting of the Board of Directors after the next succeeding election of
the Board of Directors and until his or her successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
SECTION 3. Removal. Any officer may be removed with or without cause
by the Board of Directors whenever, in the judgment of the Board of Directors,
the best interests of the Corporation will be served thereby. The President may
remove any officer that the President is authorized to appoint and elect in
accordance with Section 1 whenever, in the judgment of the President, the best
interests of the Corporation will be served thereby. Election or appointment of
an officer shall not of itself create contract rights and the Board or President
need specify no cause for removal in any such removal. Any such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
10
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors. The President may fill a vacancy in any office for which the
President is authorized to appoint and elect an officer in accordance with
Section 1 of this Article.
SECTION 5. Chairman of the Board. The Chairman shall preside at all
meetings of the shareholders and Directors at which he is present and shall
perform any other duties prescribed by the Board of Directors or these Bylaws.
He shall have full authority in respect to the signing and execution of
instruments of the Corporation.
SECTION 6. President. The President shall be the Chief Executive
Officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. He or she shall, if not also Chairman of the Board,
preside in the absence of the Chairman of the Board at meetings of the
shareholders and of the Board of Directors. He or she may sign, with the
Secretary or any other proper officer of the Corporation thereunto authorized by
the Board of Directors, certificates for shares of the Corporation, and he or
she may execute all other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by the Bylaws
to some other officer or agent of the Corporation, or shall be required by law
to be otherwise signed or executed; and in general shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Board of Directors from time to time.
SECTION 7. The Vice President. In the absence of the President or in
the event of his or her death, inability, or refusal to act, the Vice-President
(or in the event there be more than one Vice-President, the Vice-Presidents in
the order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. In addition, any Vice-President
shall perform such other duties as from time to time may be assigned to him or
her by the President or by the Board of Directors.
SECTION 8. The Secretary. The Secretary shall: (a) keep the minutes
of the proceedings of the shareholders and of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of the Bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly authorized and
required; (d) keep a register of the address of each shareholder as furnished by
such shareholder; (e) sign with the President certificates for shares of the
Corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the Corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as form time to time may be assigned to him or
her by the President or by the Board of Directors, or as prescribed in these
Bylaws.
11
SECTION 9. The Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(b) receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies or other depositaries as the Board of
Directors may select; and (c) in general perform all of the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the President or by the Board of Directors. If required by
the Board of Directors, the Treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such surety or sureties as the
Board of Directors shall determine.
SECTION 10. Salaries. The salaries of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a Director of
the Corporation.
ARTICLE V. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
SECTION 1. Stock Certificates. The shares of the Corporation shall
be represented by certificates, provided, however, that the Board of Directors
may provide by resolution that some or all of any classes or series of the
Corporation's stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates, and upon request, every holder of uncertificated shares, shall be
entitled to have a certificate, in any form approved by the Board of Directors,
certifying the number and class of shares owned by the shareholder in the
Corporation, signed by the Chairman, the President, or a Vice President and by
the Secretary or Treasurer or an Assistant Secretary or Assistant Treasurer of
the Corporation and sealed with the seal of the Corporation, which may be
facsimile, engraved or printed. If the certificate is countersigned by a
transfer agent other than the Corporation or its employee, or by a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile signature, or may be engraved or printed. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on the certificate shall have ceased to be an officer,
transfer agent, or registrar before the certificate is issued, the certificate
may nevertheless be issued by the Corporation with the same effect as if such
person were an officer, transfer agent, or registrar at the date of issue.
SECTION 2. Transfer of Stock. The shares of stock of the Corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives. Upon transfer of
certificated shares, the old certificates shall be surrendered to the
Corporation by the delivery thereof to thc person in charge of the stock and
transfer books and ledgers, or to such other persons as the Board of Directors
may designate, by whom they shall be cancelled and new certificates shall
thereupon be issued. In the case of uncertificated shares, transfer shall be
made only upon receipt of transfer documentation reasonably acceptable to the
Corporation. Except as otherwise expressly provided by the statutes of the State
of Missouri, the Corporation shall be entitled to treat the holder of record of
any share or shares of stock as the absolute owner thereof for all purposes and,
accordingly, shall not
12
be bound to recognize any legal, equitable, or other claim to or interest in
such share or shares on the part of any other person whether or not it or they
shall have express or other notice thereof. The Board of Directors shall have
the power and authority to make all such rules and regulations as it shall deem
expedient concerning the issue, transfer and registration of shares of stock of
the Corporation.
SECTION 3. Closing of Transfer Books and Fixing of Record Date. The
Board of Directors shall have the power to close the transfer books of the
Corporation for a period not exceeding 70 days prior to the date of any meeting
of shareholders, or the date for payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
shares shall go into effect. In lieu of so closing the transfer books, the Board
of Directors may fix in advance a record date for the determination of the
shareholders entitled to notice of and to vote at any meeting and any
adjournment or postponement thereof, or entitled to receive payment of any
dividend or any allotment of rights, or entitled to exercise the rights in
respect of any change, conversion, or exchange of shares, up to 70 days prior to
the date of any meeting of shareholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of shares shall go into effect. In such case only the
shareholders who are shareholders of record on the date of closing the share
transfer books, or on the record date so fixed, shall be entitled to receive
notice of and to vote at such meeting and any adjournment or postponement
thereof, or to receive payment of such dividend, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
Corporation after the date of closing of the transfer books or the record date
fixed as aforesaid. If the Board of Directors does not close the transfer books
or set a record date for the determination of the shareholders entitled to
notice of and to vote any meeting of shareholders, only the shareholders who are
shareholders of record at the close of business on the 20th day preceding the
date of the meeting shall be entitled to notice of and to vote at the meeting
and upon any adjournment or postponement of the meeting, except that if prior to
the meeting written waivers of notice of the meeting are signed and delivered to
the Corporation by all of the shareholders of record at the time the meeting is
convened, only the shareholders who are shareholders of record at the time the
meeting is convened, shall be entitled to vote at the meeting and any
adjournment or postponement of the meeting.
Section 4. Lost, Stolen, Destroyed or Mutilated Certificates. The
holder of any shares of stock of the Corporation shall immediately notify the
Corporation and its transfer agents and registrars, if any, of any loss, theft,
destruction or mutilation of the certificates representing the same. The
Corporation may issue a new certificate or uncertificated shares in place of any
certificate theretofore issued by it which is alleged to have been lost, stolen
or destroyed and the Board of Directors may require the owner of the lost,
stolen or destroyed certificate or the owner's legal representative to give the
Corporation a bond in a sum and in a form approved by the Board of Directors,
and with a surety or sureties which the Board of Directors finds satisfactory,
to indemnify the Corporation and its transfer agents and registrars, if any,
against any claim or liability that may be asserted against or incurred by it or
any transfer agent or registrar on account of the alleged loss, theft or
destruction of any certificate or the issuance of a new certificate or
uncertificated shares. The Board of Directors may, however, in its discretion,
refuse to issue any such new certificate or uncertificated shares except
pursuant to
13
legal proceedings under the laws of the State of Missouri in such case made and
provided. A new certificate or uncertificated shares may be issued without
requiring any bond when, in the judgment of the Board of Directors, it is proper
so to do. The Board of Directors may delegate to any Officer or Officers of the
Corporation any of the powers and authorities contained in this section.
Section 5. Transfer Agents and Registrars. The Board of Directors
may appoint one or more transfer agents or transfer clerks and one or more
registrars which may be banks, trust companies, or other financial institutions
located within or without the State of Missouri; may define the authority of
such transfer agents and registrars of transfers; may require all stock
certificates to bear the signature of a transfer agent or a registrar of
transfers, or both; may impose such rules, regulations or procedures regarding
uncertificated shares as it deems appropriate; and may change or remove any such
transfer agent or registrar of transfers.
ARTICLE VI. FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January and end on the thirty-first day of December in each year.
ARTICLE VII. DIVIDENDS
The Board of Directors may, from time to time, declare and the
Corporation may pay dividends on its outstanding shares in the manner, and upon
the terms and conditions provided by law and its Articles of Incorporation.
ARTICLE VIII. CORPORATE SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words, "Corporate Seal." The seal shall
be in the charge of the Secretary.
ARTICLE IX. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or
director of the Corporation under the provisions of these Bylaws or under the
provisions of the Articles of Incorporation or under the provisions of the
General and Business Corporation law of Missouri, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
ARTICLE X. AMENDMENTS
These Bylaws may be altered, amended, or repealed and new Bylaws may
be adopted by a majority of the entire Board of Directors at any regular or
special meeting of the Board of Directors, provided that no Bylaw may be adopted
or amended so as to be inconsistent with the Articles of Incorporation of the
Corporation, or the Constitution or laws of the State of Missouri.
14
ARTICLE XI. CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules
of construction and definitions in the Articles and the General and Business
Corporation Law of Missouri shall govern the construction of these Bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, the term "person" includes
both a corporation and a natural person, and the masculine gender includes the
feminine gender and vice versa. Any article, section, subsection, subdivision,
sentence, clause or phrase of these Bylaws which shall be contrary to or
inconsistent with any applicable provisions of law, shall not apply so long as
said provisions of law shall remain in effect, but shall result shall not affect
the validity or applicability of any other portions of these Bylaws, it being
hereby declared that these Bylaws would have been adopted and each article,
section, subsection, subdivision, sentence, clause or phrase thereof,
irrespective of the fact that any one or more articles, sections, subsections,
subdivisions, sentences, clauses or phrases is or are illegal.
ARTICLE XII. CONTROL SHARE ACQUISITIONS
Section 351.407 of the General and Business Corporation Law of
Missouri, as amended from time to time (relating to control share acquisitions),
shall not apply to control share acquisitions of shares of capital stock of the
Corporation.
* * * * *
AMENDMENTS:
Article XII added effective as of August 13, 1999 by resolution of the Special
Committee that was appointed by the Board of Directors of the Corporation at a
special meeting of the Board of Directors on August 10, 1999.
Article IV, Sections 1,2,3, and 4 amended in their entirety by unanimous vote at
a regular meeting of the Board of Directors held July 26, 2000.
Amended and Restated Bylaws adopted by unanimous vote at a regular meeting of
the Board of Directors held January 28, 2004, subject to shareholder approval of
certain amendments to the Articles (Amended and Restated Bylaws became effective
May 26, 2004 following Annual Meeting of Shareholders and failure of proposal
5).
15
Exhibit 10.1
AMENDMENT TO THE
REINSURANCE GROUP OF AMERICA, INCORPORATED
FLEXIBLE STOCK PLAN
AS AMENDED AND RESTATED EFFECTIVE JULY 1, 1998
WHEREAS, Reinsurance Group of America, Incorporated (the "Company")
established the Reinsurance Group of America, Incorporated Flexible Stock Plan
(the "Plan") to enhance the ability of the Company to reward and provide stock
based incentives to its key employees; and
WHEREAS, the Company's shareholders previously approved the Plan and
amendments thereto; and
WHEREAS, on January 28, 2004, the Board of Directors of the Company
approved an amendment to the Plan, subject to shareholder approval, to eliminate
the provision for a 5% annual increase in the number of Shares allocated to the
Plan.
NOW, THEREFORE, the Company hereby amends the Plan as follows:
1. Effective upon the date of approval of this amendment by the Company's
shareholders, Section 3.1 of the Plan is amended in its entirety to read as
follows:
3.1 Number of Shares. The number of Shares which may be issued or
sold or for which Options, SARs or Performance Shares may be granted under
the Plan shall be 6,260,077 Shares. Such Shares may be authorized but
unissued Shares, Shares held in the treasury, or both.
2. Capitalized terms used herein shall have the same meanings ascribed to
them in the Plan.
IN WITNESS WHEREOF, Reinsurance Group of America, Incorporated hereby
adopts the foregoing amendment this 26th day of May, 2004.
REINSURANCE GROUP OF AMERICA,
INCORPORATED
/S/ A. Greig Woodring
-------------------------------------------
A. Greig Woodring
President and Chief Executive Officer
Exhibit 31.1
CEO CERTIFICATION
I, A. Greig Woodring, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reinsurance Group of
America, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) ) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 5, 2004 /s/ A. Greig Woodring
A. Greig Woodring
President & Chief Executive Officer
Exhibit 31.2
CFO CERTIFICATION
I, Jack B. Lay, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reinsurance Group of
America, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) ) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 5, 2004 /s/ Jack B. Lay
Jack B. Lay
Executive Vice President
& Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Reinsurance Group of
America, Incorporated and subsidiaries, (the "Company"), for the quarterly
period ended June 30, 2004, as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), A. Greig Woodring, Chief Executive Officer of
the Company, certifies, to his best knowledge and belief, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: August 5, 2004 /s/ A. Greig Woodring
A. Greig Woodring
President & Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Reinsurance Group of
America, Incorporated and subsidiaries, (the "Company"), for the quarterly
period ended June 30, 2004, as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), Jack B. Lay, Chief Financial Officer of the
Company, certifies, to his best knowledge and belief, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: August 5, 2004 /s/ Jack B. Lay
Jack B. Lay
Executive Vice President & Chief
Financial Officer
