Reinsurance Group of America Reports First-Quarter Results
- Earnings per diluted share: operating income*
$1.61 , net income$1.92 - Reported net premiums rose six percent quarter over quarter; up nine percent in original currencies
- Higher-than-expected mortality claims in
North America adversely affected results - Repurchased approximately 1.45 million shares for
$113 million during the quarter
Quarterly Results | ||||||
($ in thousands, except per share data) | 2014 | 2013 | ||||
Net premiums | $2,100,637 | $1,979,693 | ||||
Net income | 136,664 | 185,535 | ||||
Net income per diluted share | 1.92 | 2.49 | ||||
Operating income* | 114,807 | 122,847 | ||||
Operating income per diluted share* | 1.61 | 1.65 | ||||
Book value per share |
89.92 |
94.34 | ||||
Book value per share (excl. Accumulated Other Comprehensive Income “AOCI”)* |
71.51 |
67.37 | ||||
Total assets | 40,541,581 | 40,197,101 | ||||
* See ‘Use of Non-GAAP Financial Measures’ below | ||||||
Consolidated net premiums increased six percent to
The company’s effective tax rate on operating income of 30.7 percent was below the expected effective tax rate of 34 percent to 35 percent, primarily due to tax benefits associated with claims experience on certain international treaties, partially offset by a tax accrual related to the Active Financing Exception business extender provision in the U.S., which had not been enacted as of the end of the quarter.
“Claims fluctuations of the sort experienced during the quarter are an ongoing part of our business. We would expect a return to a more normal pattern as the year progresses.
“During the quarter, we repurchased approximately 1.45 million shares for a total cost of
SEGMENT RESTRUCTURING
The company realigned certain operations and management responsibilities to better fit within its geographic-based segments.
SEGMENT RESULTS
U.S. and
Traditional
The U.S. and Latin America Traditional segment reported pre-tax operating income of
Non-Traditional
The Asset Intensive business reported another strong quarter with pre-tax operating income totaling
The Financial Reinsurance business continues to perform well and reported pre-tax operating income of
Canadian operations reported pre-tax operating income of
EMEA’s pre-tax operating income increased to
Corporate and Other
The Corporate and Other segment reported pre-tax operating income of
Dividend Declaration
The board of directors declared a regular quarterly dividend of
Earnings Conference Call
A conference call to discuss first-quarter results will begin at
The company has posted to its website a Quarterly Financial Supplement that includes financial information for all segments as well as information on its investment portfolio. Additionally, the company posts periodic reports, press releases and other useful information on its investor relations website.
Use of Non-GAAP Financial Measures
RGA uses a non-GAAP financial measure called operating income as a basis for analyzing financial results. This measure also serves as a basis for establishing target levels and awards under RGA’s management incentive programs. Management believes that operating income, on a pre-tax and after-tax basis, better measures the ongoing profitability and underlying trends of the company’s continuing operations, primarily because that measure excludes substantially all of the effect of net investment related gains and losses, as well as changes in the fair value of certain embedded derivatives and related deferred acquisition costs. These items can be volatile, primarily due to the credit market and interest rate environment, and are not necessarily indicative of the performance of the company’s underlying businesses. Additionally, operating income excludes any net gain or loss from discontinued operations, the cumulative effect of any accounting changes, and other items that management believes are not indicative of the company’s ongoing operations. The definition of operating income can vary by company and is not considered a substitute for GAAP net income. Reconciliations to GAAP net income are provided in the following tables. Additional financial information can be found in the Quarterly Financial Supplement on RGA’s Investor Relations website at www.rgare.com in the “Quarterly Results” tab and in the “Featured Report” section.
Book value per share outstanding before impact of AOCI is a non-GAAP financial measure that management believes is important in evaluating the balance sheet in order to ignore the effects of unrealized amounts primarily associated with mark-to-market adjustments on investments and foreign currency translation.
Operating return on equity is a non-GAAP financial measure calculated as operating income divided by average shareholders’ equity excluding AOCI.
About RGA
Cautionary Statement Regarding Forward-looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, among others, statements relating to projections of the earnings, revenues, income or loss, future financial performance and growth potential of
Numerous important factors could cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without limitation, (1) adverse capital and credit market conditions and their impact on our liquidity, access to capital, and cost of capital, (2) the impairment of other financial institutions and its effect on our business, (3) requirements to post collateral or make payments due to declines in market value of assets subject to our collateral arrangements, (4) the fact that the determination of allowances and impairments taken on our investments is highly subjective, (5) adverse changes in mortality, morbidity, lapsation, or claims experience, (6) changes in our financial strength and credit ratings and the effect of such changes on our future results of operations and financial condition, (7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in our current and planned markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital, (10) market or economic conditions that adversely affect the value of our investment securities or result in the impairment of all or a portion of the value of certain of our investment securities, (11) market or economic conditions that adversely affect our ability to make timely sales of investment securities, (12) risks inherent in our risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves, resources, and accurate information relating to settlements, awards, and terminated and discontinued lines of business, (16) the stability of and actions by governments and economies in the markets in which we operate, including ongoing uncertainties regarding the amount of
Forward-looking statements should be evaluated together with the many risks and uncertainties that affect our business, including those mentioned in this document and described in the periodic reports we file with the
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | |||||||||||
Reconciliation of Consolidated Net Income to Operating Income | |||||||||||
(Dollars in thousands) | |||||||||||
(Unaudited) | Three Months Ended | ||||||||||
March 31, | |||||||||||
2014 | 2013 | ||||||||||
GAAP net income | $ | 136,664 | $ | 185,535 | |||||||
Reconciliation to operating income: | |||||||||||
Capital (gains) losses, derivatives and other, included in investment related (gains) losses, net | (17,007 | ) | 31,434 | ||||||||
Capital (gains) losses on funds withheld, included in investment income | (253 | ) | (1,321 | ) | |||||||
Embedded derivatives: | |||||||||||
Included in investment related (gains) losses, net | (34,827 | ) | (92,022 | ) | |||||||
Included in interest credited | (4,264 | ) | (12,552 | ) | |||||||
DAC offset, net | 34,494 | 42,002 | |||||||||
Gain on repurchase of collateral finance facility securities | - | (30,229 | ) | ||||||||
Operating income | $ | 114,807 | $ | 122,847 | |||||||
Reconciliation of Consolidated Pre-tax Net Income to Pre-tax Operating Income | |||||||||||
(Dollars in thousands) | |||||||||||
(Unaudited) | Three Months Ended | ||||||||||
March 31, | |||||||||||
2014 | 2013 | ||||||||||
Income before income taxes | $ | 199,440 | $ | 278,827 | |||||||
Reconciliation to pre-tax operating income: | |||||||||||
Capital (gains) losses, derivatives and other, included in investment related (gains) losses, net | (26,306 | ) | 48,842 | ||||||||
Capital (gains) losses on funds withheld, included in investment income | (389 | ) | (2,031 | ) | |||||||
Embedded derivatives: | |||||||||||
Included in investment related (gains) losses, net | (53,580 | ) | (141,572 | ) | |||||||
Included in interest credited | (6,560 | ) | (19,311 | ) | |||||||
DAC offset, net | 53,068 | 64,618 | |||||||||
Gain on repurchase of collateral finance facility securities | - | (46,506 | ) | ||||||||
Pre-tax operating income | $ | 165,673 | $ | 182,867 | |||||||
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | |||||||||||||||||||||||||||||
Reconciliation of Pre-tax Net Income to Pre-tax Operating Income | |||||||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||
Three Months Ended March 31, 2014 | |||||||||||||||||||||||||||||
Capital | Change in | ||||||||||||||||||||||||||||
(gains) losses, | value of | Pre-tax | |||||||||||||||||||||||||||
Pre-tax net | derivatives | embedded | operating | ||||||||||||||||||||||||||
income | and other, net | derivatives, net | income | ||||||||||||||||||||||||||
U.S. and Latin America Operations: | |||||||||||||||||||||||||||||
Traditional | $ | 50,972 | $ | (4,224 | ) | $ | 1,455 | $ | 48,203 | ||||||||||||||||||||
Non-Traditional: |
|||||||||||||||||||||||||||||
Asset Intensive | 70,615 | (19,239 | ) | (1) | (10,371 | ) | (2) | 41,005 | |||||||||||||||||||||
Financial Reinsurance | 12,509 | (83 | ) | - | 12,426 | ||||||||||||||||||||||||
Total U.S. and Latin America | 134,096 | (23,546 | ) | (8,916 | ) | 101,634 | |||||||||||||||||||||||
Canada Operations | 20,064 | 2,059 | - | 22,123 | |||||||||||||||||||||||||
Europe, Middle East and Africa | 15,205 | (1,229 | ) | - | 13,976 | ||||||||||||||||||||||||
Asia Pacific Operations | 26,311 | (1,653 | ) | - | 24,658 | ||||||||||||||||||||||||
Corporate and Other | 3,764 | (482 | ) | - | 3,282 | ||||||||||||||||||||||||
Consolidated | $ | 199,440 | $ | (24,851 | ) | $ | (8,916 | ) | $ | 165,673 | |||||||||||||||||||
(1) Asset Intensive is net of $1,844 DAC offset. | |||||||||||||||||||||||||||||
(2) Asset Intensive is net of $51,224 DAC offset. | |||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||
Three Months Ended March 31, 2013 | |||||||||||||||||||||||||||||
Capital | Change in | ||||||||||||||||||||||||||||
(gains) losses, | value of | Pre-tax | |||||||||||||||||||||||||||
Pre-tax net | derivatives | embedded | Gain on debt | operating | |||||||||||||||||||||||||
income | and other, net | derivatives, net | repurchase | income (loss) | |||||||||||||||||||||||||
U.S. and Latin America Operations: | |||||||||||||||||||||||||||||
Traditional | $ | 79,543 | $ | (7,253 | ) | $ | (56 | ) | $ | - | $ | 72,234 | |||||||||||||||||
Non-Traditional: |
|||||||||||||||||||||||||||||
Asset Intensive | 89,523 | 14,888 | (1) | (58,815 | ) | (2) | - | 45,596 | |||||||||||||||||||||
Financial Reinsurance | 8,041 | (34 | ) | - | - | 8,007 | |||||||||||||||||||||||
Total U.S. and Latin America | 177,107 | 7,601 | (58,871 | ) | - | 125,837 | |||||||||||||||||||||||
Canada Operations | 36,308 | (3,431 | ) | - | - | 32,877 | |||||||||||||||||||||||
Europe, Middle East and Africa | 10,963 | (1,772 | ) | - | - | 9,191 | |||||||||||||||||||||||
Asia Pacific Operations | 18,242 | 4,821 | - | - | 23,063 | ||||||||||||||||||||||||
Corporate and Other | 36,207 | 2,198 | - | (46,506 | ) | (8,101 | ) | ||||||||||||||||||||||
Consolidated | $ | 278,827 | $ | 9,417 | $ | (58,871 | ) | $ | (46,506 | ) | $ | 182,867 | |||||||||||||||||
(1) Asset Intensive is net of $(37,394) DAC offset. | |||||||||||||||||||||||||||||
(2) Asset Intensive is net of $102,012 DAC offset. |
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | |||||||||
Per Share and Shares Data | |||||||||
(In thousands, except per share data) | |||||||||
(Unaudited) | Three Months Ended | ||||||||
March 31, | |||||||||
2014 | 2013 | ||||||||
Diluted earnings per share from operating income | $ | 1.61 | $ | 1.65 | |||||
Earnings per share from net income: | |||||||||
Basic earnings per share | $ | 1.94 | $ | 2.51 | |||||
Diluted earnings per share | $ | 1.92 | $ | 2.49 | |||||
Weighted average number of common and common equivalent shares outstanding |
71,264 | 74,389 | |||||||
(Unaudited) | At or For the Three Months | ||||||||
Ended March 31, | |||||||||
2014 | 2013 | ||||||||
Treasury shares | 9,624 | 5,837 | |||||||
Common shares outstanding | 69,514 | 73,301 | |||||||
Book value per share outstanding | $ |
89.92 |
$ | 94.34 | |||||
Book value per share outstanding, before impact of AOCI | $ | 71.51 | $ | 67.37 | |||||
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | ||||||||||||
Condensed Consolidated Statements of Income | ||||||||||||
(Dollars in thousands) | ||||||||||||
(Unaudited) | Three Months Ended | |||||||||||
March 31, | ||||||||||||
|
2014 | 2013 | ||||||||||
Revenues: |
||||||||||||
Net premiums | $ | 2,100,637 | $ | 1,979,693 | ||||||||
Investment income, net of related expenses | 404,375 | 425,131 | ||||||||||
Investment related gains (losses), net: | ||||||||||||
Other-than-temporary impairments on fixed maturity securities | (303 | ) | (202 | ) | ||||||||
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income |
- | - | ||||||||||
Other investment related gains (losses), net | 84,874 | 94,573 | ||||||||||
Total investment related gains (losses), net | 84,571 | 94,371 | ||||||||||
Other revenue | 67,590 | 101,907 | ||||||||||
Total revenues | 2,657,173 | 2,601,102 | ||||||||||
Benefits and expenses: | ||||||||||||
Claims and other policy benefits | 1,843,677 | 1,688,910 | ||||||||||
Interest credited | 110,594 | 125,483 | ||||||||||
Policy acquisition costs and other insurance expenses | 354,873 | 357,357 | ||||||||||
Other operating expenses | 110,936 | 119,501 | ||||||||||
Interest expense | 35,084 | 28,486 | ||||||||||
Collateral finance facility expense | 2,569 | 2,538 | ||||||||||
Total benefits and expenses | 2,457,733 | 2,322,275 | ||||||||||
Income before income taxes | 199,440 | 278,827 | ||||||||||
Income tax expense | 62,776 | 93,292 | ||||||||||
Net income | $ | 136,664 | $ | 185,535 | ||||||||
Source:
Reinsurance Group of America, Incorporated
Jeff Hopson, 636-736-7000
Senior Vice President – Investor Relations