Reinsurance Group of America Reports Third-Quarter Results
-
Higher-than-expected U.S. and
Australia claims significantly reduced income levels -
Earnings per diluted share: net income
$1.95 , operating income*$1.35 -
Net premiums up eight percent to
$1.9 billion - Year-to-date operating return on equity* 10 percent
Quarterly Results | Year-to-Date Results | |||||||||||||||
($ in thousands, except per share data) | 2012 | 2011 | 2012 | 2011 | ||||||||||||
Net premiums | $ | 1,912,746 | $ | 1,776,165 | $ | 5,726,889 | $ | 5,300,971 | ||||||||
Net income | 144,475 | 134,602 | 408,904 | 407,466 | ||||||||||||
Net income per diluted share | 1.95 | 1.81 | 5.52 | 5.49 | ||||||||||||
Operating income* | 99,902 | 138,837 | 334,552 | 364,824 | ||||||||||||
Operating income per diluted share* | 1.35 | 1.87 | 4.52 | 4.92 | ||||||||||||
Book value per share | 91.18 | 73.15 | ||||||||||||||
Book value per share (excl. Accumulated Other Comprehensive Income “AOCI”)* |
62.05 |
55.47 |
||||||||||||||
Total assets | 39,924,013 | 30,736,591 | ||||||||||||||
* See ‘Use of Non-GAAP Financial Measures’ below |
||||||||||||||||
|
Consolidated net premiums increased eight percent to
Excluding the effect of spread-based investment income and changes in
value of associated derivatives, investment income increased slightly
compared with the third quarter of 2011, with declining new money yields
mostly offsetting a growing invested asset base. The average book value
of non-spread-based invested assets was up approximately
“In Australia, adverse individual mortality and disability claims
contributed to a poor quarter. We continue to monitor that business
closely. Additionally, we have performed a detailed review of our
Australian group reinsurance business and, as a result of the emerging
experience, strengthened Australia’s group business claim liabilities by
“In the U.S., both the individual mortality and group reinsurance businesses were adversely affected this quarter by higher-than-expected claims. A thorough analysis of the individual mortality experience revealed claims frequency was more prominent than severity this quarter. We expect the volatility in recent quarters to level out over longer horizons. Our U.S. group reinsurance business also experienced higher-than-expected claims in its disability, medical / managed care and life coverages. That business has mostly performed in line with expectations on a year-to-date basis with the exception of the medical / managed care line, which is prone to large claim volatility.
“Consolidated premium growth was solid, rising eight percent on a
reported basis and over nine percent in original currencies.
Consolidated operating income totaled
“Annualized operating return on equity was nine percent for the quarter and 10 percent year-to-date. Both of those return levels are lower than our expected rate of return. Historically, our returns have been fairly stable, and we face some degree of headwinds from the current investment environment. Our balance sheet remains strong as does our level of deployable capital. We continue to evaluate a significant number of block and other reinsurance opportunities across the globe.”
SEGMENT RESULTS
U.S.
The U.S. Traditional sub-segment pre-tax net income decreased to
The U.S. Asset-Intensive business reported pre-tax income of
The U.S. Financial Reinsurance business added pre-tax operating income
of
Canadian operations reported pre-tax net income of
Corporate and Other
The Corporate and Other segment reported a pre-tax net loss of
Dividend Declaration
The board of directors declared a regular quarterly dividend of
Earnings Conference Call
The Company’s conference call, previously scheduled for
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 the effect of net investment related gains and losses, as well as changes in the fair value of certain embedded derivatives and related deferred acquisition costs. These items can be volatile, primarily due to the credit market and interest rate environment, and are not necessarily indicative of the performance of the company’s underlying businesses. Additionally, operating income excludes any net gain or loss from discontinued operations and the cumulative effect of any accounting changes, which management believes are not indicative of the company’s ongoing operations. The definition of operating income can vary by company and is not considered a substitute for GAAP net income. Reconciliations to GAAP net income are provided in the following tables. Additional financial information can be found in the Quarterly Financial Supplement on RGA’s Investor Relations 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | ||||||||||||||||
2012 |
2011 |
2012 |
2011 |
||||||||||||||
GAAP net income | $ | 144,475 | $ | 134,602 | $ | 408,904 | $ | 407,466 | |||||||||
Reconciliation to operating income: | |||||||||||||||||
Capital (gains) losses, derivatives and other, included in investment related (gains) losses, net | (11,972 | ) | (144,834 | ) | (18,617 | ) | (171,005 | ) | |||||||||
Capital (gains) losses on funds withheld: | |||||||||||||||||
Included in investment income | (4,160 | ) | (6,374 | ) | (6,944 | ) | (3,218 | ) | |||||||||
Included in policy acquisition costs and other insurance expenses | 79 | 672 | 314 | 586 | |||||||||||||
Embedded derivatives: | |||||||||||||||||
Included in investment related (gains) losses, net | (37,320 | ) | 235,828 | (74,737 | ) | 165,723 | |||||||||||
Included in interest credited | (108 | ) | 24,400 | 24,302 | 20,669 | ||||||||||||
Included in policy acquisition costs and other insurance expenses | - | (2,381 | ) | - | (1,815 | ) | |||||||||||
DAC offset, net | 8,908 | (70,011 | ) | 1,330 | (20,140 | ) | |||||||||||
Gain on repurchase of collateral finance facility securities | - | (33,065 | ) | - | (36,296 | ) | |||||||||||
Loss on retirement of Preferred Income Equity Redeemable Securities (“PIERS”) |
- | - | - | 2,854 | |||||||||||||
Operating income | $ | 99,902 | $ | 138,837 | $ | 334,552 | $ | 364,824 | |||||||||
Reconciliation of Consolidated Pre-tax Net Income to Pre-tax Operating Income | |||||||||||||||||
(Dollars in thousands) | |||||||||||||||||
(Unaudited) | Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | ||||||||||||||||
2012 |
2011 |
2012 |
2011 |
||||||||||||||
Income before income taxes | $ | 201,479 | $ | 156,396 | $ | 598,134 | $ | 570,320 | |||||||||
Reconciliation to pre-tax operating income: | |||||||||||||||||
Capital (gains) losses, derivatives and other, included in investment related (gains) losses, net | (16,940 | ) | (221,194 | ) | (25,026 | ) | (260,247 | ) | |||||||||
Capital (gains) losses on funds withheld: | |||||||||||||||||
Included in investment income | (6,400 | ) | (9,806 | ) | (10,683 | ) | (4,950 | ) | |||||||||
Included in policy acquisition costs and other insurance expenses | 122 | 1,034 | 483 | 902 | |||||||||||||
Embedded derivatives: | |||||||||||||||||
Included in investment related (gains) losses, net | (57,415 | ) | 362,813 | (114,980 | ) | 254,959 | |||||||||||
Included in interest credited | (167 | ) | 37,539 | 37,387 | 31,799 | ||||||||||||
Included in policy acquisition costs and other insurance expenses | - | (3,664 | ) | - | (2,793 | ) | |||||||||||
DAC offset, net | 13,705 | (107,709 | ) | 2,047 | (30,984 | ) | |||||||||||
Gain on repurchase of collateral finance facility securities | - | (50,869 | ) | - | (55,840 | ) | |||||||||||
Loss on retirement of PIERS | - | - | - | 4,391 | |||||||||||||
Pre-tax operating income | $ | 134,384 | $ | 164,540 | $ | 487,362 | $ | 507,557 | |||||||||
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 September 30, 2012 | |||||||||||||||||||||||
Capital | Change in | ||||||||||||||||||||||
(gains) losses, | value of | Pre-tax | |||||||||||||||||||||
Pre-tax net | derivatives | embedded | operating | ||||||||||||||||||||
income (loss) |
and other, net |
derivatives, net |
income (loss) |
||||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||
Traditional | $ | 70,556 | $ | 2,506 | $ | (579 | ) | $ | 72,483 | ||||||||||||||
Asset Intensive | 77,986 | (32,792 | ) |
(1 |
) |
(18,075 | ) |
(2 |
) |
27,119 | |||||||||||||
Financial Reinsurance | 8,136 | 146 | - | 8,282 | |||||||||||||||||||
Total U.S. | 156,678 | (30,140 | ) | (18,654 | ) | 107,884 | |||||||||||||||||
Canada Operations | 37,520 | (9,378 | ) | - | 28,142 | ||||||||||||||||||
Europe & South Africa | 32,166 | (7,111 | ) | - | 25,055 | ||||||||||||||||||
Asia Pacific Operations | (16,483 | ) | (4,265 | ) | - | (20,748 | ) | ||||||||||||||||
Corporate and Other | (8,402 | ) | 2,453 | - | (5,949 | ) | |||||||||||||||||
Consolidated | $ | 201,479 | $ | (48,441 | ) | $ | (18,654 | ) | $ | 134,384 | |||||||||||||
(1) Asset Intensive is net of $(25,223) DAC offset. | |||||||||||||||||||||||
(2) Asset Intensive is net of $38,928 DAC offset. | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Three Months Ended September 30, 2011 | |||||||||||||||||||||||
Capital | Change in | Net (gain) loss | |||||||||||||||||||||
(gains) losses, | value of | on repurchase | Pre-tax | ||||||||||||||||||||
Pre-tax net | derivatives | embedded | and retirement | operating | |||||||||||||||||||
income (loss) |
and other, net |
derivatives, net |
of securities |
income |
|||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||
Traditional | $ | 85,229 | $ | (3,681 | ) | $ | (1,375 | ) | $ | - | $ | 80,173 | |||||||||||
Asset Intensive | (60,530 | ) | (25,501 | ) |
(1 |
) |
87,553 |
(2 |
) |
- | 1,522 | ||||||||||||
Financial Reinsurance | 6,392 | 13 | - | - | 6,405 | ||||||||||||||||||
Total U.S. | 31,091 | (29,169 | ) | 86,178 | - | 88,100 | |||||||||||||||||
Canada Operations | 43,711 | (8,729 | ) | - | - | 34,982 | |||||||||||||||||
Europe & South Africa | 12,029 | (2,000 | ) | - | - | 10,029 | |||||||||||||||||
Asia Pacific Operations | 25,644 | 1,625 | - | - | 27,269 | ||||||||||||||||||
Corporate and Other | 43,921 | 11,108 | - | (50,869 | ) | 4,160 | |||||||||||||||||
Consolidated | $ | 156,396 | $ | (27,165 | ) | $ | 86,178 | $ | (50,869 | ) | $ | 164,540 | |||||||||||
(1) Asset Intensive is net of $202,801 DAC offset. | |||||||||||||||||||||||
(2) Asset Intensive is net of $(310,510) DAC offset. | |||||||||||||||||||||||
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | |||||||||||||||||||||||
Reconciliation of Pre-tax Net Income to Pre-tax Operating Income | |||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Nine Months Ended September 30, 2012 | |||||||||||||||||||||||
Capital | Change in | ||||||||||||||||||||||
(gains) losses, | value of | Pre-tax | |||||||||||||||||||||
Pre-tax net | derivatives | embedded | operating | ||||||||||||||||||||
income (loss) |
and other, net |
derivatives, net |
income (loss) |
||||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||
Traditional | $ | 216,734 | $ | 14,900 | $ | (678 | ) | $ | 230,956 | ||||||||||||||
Asset Intensive | 149,178 | (65,622 | ) |
(1 |
) |
(15,313 | ) |
(2 |
) |
68,243 | |||||||||||||
Financial Reinsurance | 24,097 | 253 | - | 24,350 | |||||||||||||||||||
Total U.S. | 390,009 | (50,469 | ) | (15,991 | ) | 323,549 | |||||||||||||||||
Canada Operations | 127,613 | (22,305 | ) | - | 105,308 | ||||||||||||||||||
Europe & South Africa | 58,363 | (10,249 | ) | - | 48,114 | ||||||||||||||||||
Asia Pacific Operations | 39,443 | (10,555 | ) | - | 28,888 | ||||||||||||||||||
Corporate and Other | (17,294 | ) | (1,203 | ) | - | (18,497 | ) | ||||||||||||||||
Consolidated | $ | 598,134 | $ | (94,781 | ) | $ | (15,991 | ) | $ | 487,362 | |||||||||||||
(1) Asset Intensive is net of $(59,555) DAC offset. | |||||||||||||||||||||||
(2) Asset Intensive is net of $61,602 DAC offset. | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
Nine Months Ended September 30, 2011 | |||||||||||||||||||||||
Capital | Change in | Net (gain) loss | |||||||||||||||||||||
(gains) losses, | value of | on repurchase | Pre-tax | ||||||||||||||||||||
Pre-tax net | derivatives | embedded | and retirement | operating | |||||||||||||||||||
income |
and other, net |
derivatives, net |
of securities |
income |
|||||||||||||||||||
U.S. Operations: | |||||||||||||||||||||||
Traditional | $ | 251,381 | $ | (12,761 | ) | $ | (1,375 | ) | $ | - | $ | 237,245 | |||||||||||
Asset Intensive | 22,047 | (27,742 | ) |
(1 |
) |
48,543 |
(2 |
) |
- | 42,848 | |||||||||||||
Financial Reinsurance | 19,509 | 41 | - | - | 19,550 | ||||||||||||||||||
Total U.S. | 292,937 | (40,462 | ) | 47,168 | - | 299,643 | |||||||||||||||||
Canada Operations | 117,712 | (15,253 | ) | - | - | 102,459 | |||||||||||||||||
Europe & South Africa | 47,089 | (3,049 | ) | - | - | 44,040 | |||||||||||||||||
Asia Pacific Operations | 51,946 | 2,253 | - | - | 54,199 | ||||||||||||||||||
Corporate and Other | 60,636 | (1,971 | ) | - | (51,449 | ) | 7,216 | ||||||||||||||||
Consolidated | $ | 570,320 | $ | (58,482 | ) | $ | 47,168 | $ | (51,449 | ) | $ | 507,557 | |||||||||||
(1) Asset Intensive is net of $205,813 DAC offset. | |||||||||||||||||||||||
(2) Asset Intensive is net of $(236,797) DAC offset. | |||||||||||||||||||||||
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | |||||||||||||
Per Share and Shares Data | |||||||||||||
(In thousands, except per share data) | |||||||||||||
(Unaudited) | Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | ||||||||||||
2012 |
2011 |
2012 |
2011 |
||||||||||
Diluted earnings per share from operating income | $ | 1.35 | $ | 1.87 | $ | 4.52 | $ | 4.92 | |||||
Earnings per share from net income: | |||||||||||||
Basic earnings per share | $ | 1.96 | $ | 1.82 | $ | 5.55 | $ | 5.53 | |||||
Diluted earnings per share | $ | 1.95 | $ | 1.81 | $ | 5.52 | $ | 5.49 | |||||
Weighted average number of common and common equivalent shares outstanding |
74,138 | 74,254 | 74,078 | 74,207 | |||||||||
(Unaudited) | At or For the Nine Months | ||||||||||||
Ended September 30, | |||||||||||||
2012 |
2011 |
||||||||||||
Treasury shares |
5,286 |
5,871 | |||||||||||
Common shares outstanding | 73,852 | 73,267 | |||||||||||
Book value per share outstanding | $ |
91.18 |
$ | 73.15 | |||||||||
Book value per share outstanding, before impact of AOCI | $ | 62.05 | $ | 55.47 | |||||||||
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES | ||||||||||||||||||
Condensed Consolidated Statements of Income | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||
(Unaudited) | Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | |||||||||||||||||
Revenues: |
2012 |
2011 |
2012 |
2011 |
||||||||||||||
Net premiums | $ | 1,912,746 | $ | 1,776,165 | $ | 5,726,889 | $ | 5,300,971 | ||||||||||
Investment income, net of related expenses | 396,781 | 268,210 | 1,066,055 | 976,686 | ||||||||||||||
Investment related gains (losses), net: | ||||||||||||||||||
Other-than-temporary impairments on fixed maturity securities | (1,996 | ) | (11,911 | ) | (11,562 | ) | (19,049 | ) | ||||||||||
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income |
(559 | ) | 3,089 | (7,618 | ) | 3,381 | ||||||||||||
Other investment related gains (losses), net | 78,608 | (130,778 | ) | 162,554 | 27,076 | |||||||||||||
Total investment related gains (losses), net | 76,053 | (139,600 | ) | 143,374 | 11,408 | |||||||||||||
Other revenue | 63,501 | 90,132 | 181,491 | 192,254 | ||||||||||||||
Total revenues | 2,449,081 | 1,994,907 | 7,117,809 | 6,481,319 | ||||||||||||||
Benefits and expenses: | ||||||||||||||||||
Claims and other policy benefits | 1,662,625 | 1,514,765 | 4,868,220 | 4,504,227 | ||||||||||||||
Interest credited | 130,341 | 35,251 | 285,080 | 237,510 | ||||||||||||||
Policy acquisition costs and other insurance expenses | 318,106 | 164,372 | 961,679 | 785,138 | ||||||||||||||
Other operating expenses | 103,786 | 94,029 | 319,425 | 297,340 | ||||||||||||||
Interest expense | 29,749 | 27,025 | 76,431 | 77,412 | ||||||||||||||
Collateral finance facility expense | 2,995 | 3,069 | 8,840 | 9,372 | ||||||||||||||
Total benefits and expenses | 2,247,602 | 1,838,511 | 6,519,675 | 5,910,999 | ||||||||||||||
Income before income taxes | 201,479 | 156,396 | 598,134 | 570,320 | ||||||||||||||
Income tax expense | 57,004 | 21,794 | 189,230 | 162,854 | ||||||||||||||
Net income | $ | 144,475 | $ | 134,602 | $ | 408,904 | $ | 407,466 | ||||||||||
Source:
Reinsurance Group of America, Incorporated
John W. Hayden,
636-736-7000
Senior Vice President – Controller and Investor
Relations