- Earnings per diluted share: operating
income* up 10 percent to $1.77, net income $1.81
- Results pressured by high mortality
claims in North America; Asia Pacific posts strong results
- Reported net premiums decreased four
percent; up six percent net of foreign currency and the effect of
fourth-quarter 2014 retrocession transaction
- Approximately 2.5 million shares
repurchased for $230 million during the quarter
Reinsurance Group of America, Incorporated (NYSE: RGA), a
leading global provider of life reinsurance, reported operating
income* of $121.8 million, or $1.77 per diluted share, compared
with $114.8 million, or $1.61 per diluted share, in the
prior-year quarter. Net income totaled $125.1 million, or
$1.81 per diluted share, compared with $136.7 million, or $1.92 per
diluted share, the year before. The current period reflects
higher-than-expected mortality claims in North America, offset, in
part, by favorable results in Asia Pacific. A relatively stronger
U.S. dollar versus all major foreign currencies adversely affected
this quarter by $0.11 per share. The company has enhanced its
international segment reporting to now include traditional and
non-traditional components.
Quarterly Results ($ in thousands, except
per share data) 2015 2014 Net
premiums $2,023,852 $2,100,637 Net income 125,114 136,664 Net
income per diluted share 1.81 1.92 Operating income* 121,778
114,807 Operating income per diluted share* 1.77 1.61 Book value
per share 107.62 89.92
Book value per share (excl. Accumulated
Other Comprehensive Income “AOCI”)*
79.26
71.51
Total assets 44,691,268 40,541,581
* See ‘Use of Non-GAAP Financial Measures’
below
Consolidated net premiums totaled $2.0 billion this quarter,
down four percent from last year’s first quarter. Current-period
premiums reflect a $112 million reduction associated with the
previously announced fourth-quarter 2014 U.S. retrocession
agreement, along with adverse foreign currency effects of
approximately $97 million. Excluding those effects, premiums
increased six percent versus the prior-year quarter. Investment
income increased six percent to $426.9 million this period,
primarily due to a larger average invested asset base. Excluding
spread-based businesses and the value of associated derivatives,
investment income increased eight percent over year-ago
levels. The average investment yield was up four basis points to
4.78 percent over the first quarter of 2014, and 16 basis points
lower than the fourth-quarter yield, which was influenced by a high
level of mortgage loan prepayments and bond make-whole
premiums.
The effective tax rate on operating income was 32.5 percent this
quarter, slightly below management’s expected range of 33 percent
to 34 percent. The company generated a greater-than-expected
portion of earnings in jurisdictions that have lower income tax
rates than the U.S. statutory rate, which, along with other
adjustments, resulted in the lower-than-expected effective rate
this quarter.
Greig Woodring, president and chief executive officer,
commented, “Our operating results improved versus a year ago, but
were somewhat below our expectations, and reflect some elevated
volatility in our segment results, with the U.S. Traditional
business being unusually weak, and our Asia Pacific results
unusually strong. On a positive note, we continue to have good
balance overall, as our global model and diversified sources of
earnings again served us well. Mortality claims in North America
were considerably higher than expected, similar to last year, but
to a greater extent. The strong international results continued the
recent trends, in spite of material currency headwinds, due to
broadly favorable results across Asia Pacific and materially
favorable results in Australia.
“While there is typically a seasonal effect on our first-quarter
results, the impact in North America was more extreme this year
than in recent years. In the U.S., the higher claims this quarter
were broad-based, with an influence from both frequency (claim
count) and severity (average claim size), while last year there was
a concentration in large claims in our facultative book. Some
industry data would point to the severe winter weather and flu
season as likely influences, but we do not yet have enough
supporting information relative to this quarter’s claims flow to
determine their precise effects. As we have emphasized in the past,
we generally expect short-term claims volatility to moderate over
time, and we have not changed our intermediate-term
expectations.
“Given our strong excess capital position, we were fairly
aggressive in repurchasing our stock in the quarter, as we
repurchased approximately 2.5 million shares for a total cost of
$230 million. After closing the Aurora National acquisition on
April 1, our current deployable excess capital position is
approximately $800 million, and we expect to continue to take a
balanced approach to capital management as we consider in-force
acquisitions, share repurchases, and shareholder dividend
increases, or some combination of all of these. Our ending book
value per share for the quarter was $107.62 including AOCI, and
$79.26 excluding AOCI.”
SEGMENT RESULTS
U.S. and Latin America
Traditional
The U.S. and Latin America Traditional segment reported pre-tax
operating income of $20.3 million, compared with
$48.2 million in the first quarter of 2014, with results in
both periods reflecting poor mortality experience. A
higher-than-expected number and average size of individual
mortality claims contributed to this quarter’s adverse experience,
whereas last year’s first quarter was primarily affected by the
amount of claims exceeding $1 million. The number of those large
claims was in line with expectations this quarter, but the average
claim size was higher. Traditional net premiums decreased
two percent to $1,114.1 million, including the retrocession
agreement effective in last year’s fourth quarter, and increased
seven percent excluding that agreement. Pre-tax net income totaled
$17.8 million for the quarter, compared with
$51.0 million in last year’s first quarter.
Non-Traditional
The Asset-Intensive business reported pre-tax operating income
of $40.3 million compared with $41.0 million last year.
Current-period results were in line with management expectations
and reflected favorable net interest rate spreads. First-quarter
pre-tax net income decreased to $42.1 million from
$70.6 million a year ago, attributable to changes in the fair
value of various embedded derivatives.
The Financial Reinsurance business continued to perform well,
posting pre-tax operating income of $12.4 million for the current
and year-earlier quarters. Pre-tax net income totaled $12.4 million
in the current period and $12.5 million in last year’s first
quarter.
Canada
Traditional
The Canada Traditional business reported pre-tax operating
income of $17.2 million this quarter, down from
$21.5 million the year before. Individual mortality claims
were higher than expected and a weaker Canadian dollar adversely
affected pre-tax operating income. Similar to the U.S. business,
the first quarter is generally seasonably weak, and there were
higher-than-expected mortality claims in the year-ago quarter as
well. There were higher-than-expected large claims in both periods,
while this year’s quarter was also influenced by a higher frequency
of claims on policies under $1 million. Reported net premiums
decreased six percent to $212.6 million, also including an adverse
currency effect. Pre-tax net income totaled $22.7 million compared
with $19.4 million in the first quarter of 2014.
Non-Traditional
The Canada Non-Traditional business segment, which consists of
longevity and fee-based transactions, posted pre-tax operating
income and pre-tax net income of $4.1 million this quarter and $0.6
million in the prior-year quarter. The current-period result
includes the effect of the longevity transaction announced in
March.
In total, an adverse foreign currency fluctuation lowered
pre-tax operating income in the Canada segment by approximately
$2.4 million during the quarter, and net premiums included an
adverse effect of $27.4 million. In Canadian dollars, premiums
increased eight percent over the first quarter of 2014.
Europe, Middle East and Africa (EMEA)
Traditional
The EMEA Traditional segment reported pre-tax operating income
of $10.4 million versus a pre-tax operating loss of $2.1 million in
last year’s first quarter. The current-period results include
improved experience in the U.K. individual mortality business. Net
reported premiums decreased eight percent and totaled $269.7
million, compared with $291.8 million last year. Net foreign
currency fluctuations adversely affected pre-tax operating income
and premiums this quarter. First-quarter pre-tax net income totaled
$10.5 million versus a pre-tax net loss of $1.0 million in the
year-ago quarter.
Non-Traditional
The EMEA Non-Traditional segment includes asset-intensive,
longevity and fee-based transactions. Pre-tax operating income
increased 16 percent, to $18.6 million from $16.1 million a year
ago. The stronger current period results reflect favorable
longevity experience in the U.K. and the effect of transactions
added in 2014. Pre-tax net income totaled $19.6 million this
quarter, compared with $16.2 million in last year’s first
quarter.
In total, adverse foreign currency fluctuations reduced net
premiums and pre-tax operating income by $31.8 million and $3.7
million, respectively.
Asia Pacific
Traditional
Asia Pacific’s Traditional business reported very strong results
with pre-tax operating income of $52.6 million, a significant
increase over the prior-year result of $18.7 million. Performance
was strong across Asia Pacific operations, including our operations
in Australia, Hong Kong & Southeast Asia, and Japan. In
Australia, the first quarter is typically a seasonably strong one.
This quarter’s results were unusually good, with favorable
experience in several product areas. Reported net premiums rose two
percent, to $372.1 million from $366.1 million in the
prior-year period. First-quarter pre-tax net income totaled
$52.6 million compared with $18.9 million in last year’s
first quarter.
Non-Traditional
Asia Pacific’s Non-Traditional business includes
asset-intensive, fee-based, and other various transactions. Pre-tax
operating income in this segment increased to $10.1 million from
$5.9 million last year. Pre-tax net income totaled $10.1
million this quarter and $7.4 million in the year-ago period.
In total, Asia Pacific reported premiums included an adverse
foreign currency effect of $36.8 million. Local currency premiums
increased 10 percent over the prior-year quarter. Pre-tax operating
income was adversely affected by $5.2 million from currency
fluctuations.
Corporate and Other
The Corporate and Other segment reported a pre-tax operating
loss of $5.7 million versus pre-tax operating income of $3.3
million for the first quarter of 2014, which benefited from certain
accrual adjustments. Current-quarter results were slightly better
than expected due primarily to lower expense levels. Pre-tax net
losses were $8.0 million this quarter compared with pre-tax net
income of $3.8 million a year ago.
Dividend Declaration
The board of directors declared a regular quarterly dividend of
$0.33, payable May 28 to shareholders of record as of May 7.
Earnings Conference Call
A conference call to discuss first-quarter results will begin at
9 a.m. Eastern Time on Friday, April 24. Interested parties may
access the call by dialing 1-877-397-0292 (domestic) or
719-325-4915 (international). The access code is 9568678. A live
audio webcast of the conference call will be available on the
company’s investor relations website at www.rgare.com. A replay of
the conference call will be available at the same address for
90 days following the conference call. A telephonic replay
also will be available through May 2 at 888-203-1112 (domestic) or
719-457-0820 (international), access code 9568678.
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 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 income per diluted share is a non-GAAP financial
measure calculated as operating income divided by weighted average
diluted shares outstanding. Operating return on equity is a
non-GAAP financial measure calculated as operating income divided
by average shareholders’ equity excluding AOCI.
About RGA
Reinsurance Group of America, Incorporated is among the largest
global providers of life reinsurance, with operations in Australia,
Barbados, Bermuda, Canada, China, France, Germany, Hong Kong,
India, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands,
New Zealand, Poland, Singapore, South Africa, South Korea, Spain,
Taiwan, Turkey, the United Arab Emirates, the United Kingdom and
the United States. Worldwide, the company has approximately $2.8
trillion of life reinsurance in force, and assets of $44.7
billion.
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 Reinsurance Group of America, Incorporated
and its subsidiaries (which we refer 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 capital and credit market conditions and their impact on
the Company’s liquidity, access to capital and cost of capital, (2)
the impairment of other financial institutions and its effect on
the Company’s business, (3) requirements to post collateral or make
payments due to declines in market value of assets subject to the
Company’s collateral arrangements, (4) the fact that the
determination of allowances and impairments taken on the Company’s
investments is highly subjective, (5) adverse changes in mortality,
morbidity, lapsation or claims experience, (6) changes in the
Company’s financial strength and credit ratings and the effect of
such changes on the Company’s 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 the Company’s
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
the Company’s investment securities or result in the impairment of
all or a portion of the value of certain of the Company’s
investment securities, that in turn could affect regulatory
capital, (11) market or economic conditions that adversely affect
the Company’s ability to make timely sales of investment
securities, (12) risks inherent in the Company’s 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 the Company operates, including ongoing
uncertainties regarding the amount of United States sovereign debt
and the credit ratings thereof, (17) competitive factors and
competitors’ responses to the Company’s initiatives, (18) the
success of the Company’s clients, (19) successful execution of the
Company’s entry into new markets, (20) successful development and
introduction of new products and distribution opportunities, (21)
the Company’s ability to successfully integrate acquired blocks of
business and entities, (22) action by regulators who have authority
over the Company’s reinsurance operations in the jurisdictions in
which it operates, (23) the Company’s dependence on third parties,
including those insurance companies and reinsurers to which the
Company cedes some reinsurance, third-party investment managers and
others, (24) the threat of natural disasters, catastrophes,
terrorist attacks, epidemics or pandemics anywhere in the world
where the Company or its clients do business, (25) interruption or
failure of the Company’s telecommunication, information technology
or other operational systems, or the Company’s failure to maintain
adequate security to protect the confidentiality or privacy of
personal or sensitive data stored on such systems, (26) changes in
laws, regulations, and accounting standards applicable to the
Company, its subsidiaries, or its business, (27) the effect of the
Company’s status as an insurance holding company and regulatory
restrictions on its ability to pay principal of and interest on its
debt obligations, and (28) other risks and uncertainties described
in this document and in the Company’s other filings with the
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 described in the periodic
reports we file with the Securities and Exchange Commission. These
forward-looking statements 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 the risks and
uncertainties that could cause actual results to differ materially
from those contained in the forward-looking statements, you are
advised to review the risk factors in our Annual Report on Form
10-K for the year ended December 31, 2014.
REINSURANCE GROUP OF AMERICA, INCORPORATED
AND SUBSIDIARIES
Reconciliation of Consolidated Net Income to Operating Income
(Dollars in thousands)
(Unaudited) Three Months Ended March 31,
2015
2014 GAAP net income $ 125,114 $ 136,664
Reconciliation to operating income: Capital (gains) losses,
derivatives and other, included in investment related (gains)
losses, net (14,585 ) (17,007 ) Capital (gains) losses on funds
withheld, included in investment income (7,412 ) (253 ) Embedded
derivatives: Included in investment related (gains) losses, net
17,847 (34,827 ) Included in interest credited 6,703 (4,264 ) DAC
offset, net (5,819 ) 34,494 Non-investment derivatives (70 )
- Operating income $ 121,778 $ 114,807
Reconciliation of Consolidated Pre-tax
Net Income to Pre-tax Operating Income (Dollars in thousands)
(Unaudited) Three Months Ended March 31,
2015 2014 Income before income taxes $
184,125 $ 199,440 Reconciliation to pre-tax operating income:
Capital (gains) losses, derivatives and other, included in
investment related (gains) losses, net (20,946 ) (26,306 ) Capital
(gains) losses on funds withheld, included in investment income
(11,402 ) (389 ) Embedded derivatives: Included in investment
related (gains) losses, net 27,458 (53,580 ) Included in interest
credited 10,313 (6,560 ) DAC offset, net (8,951 ) 53,068
Non-investment derivatives (108 ) - Pre-tax
operating income $ 180,489 $ 165,673
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, 2015
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. and Latin America Operations:
Traditional $ 17,843 $ 1 $ 2,472 $ 20,316 Non-Traditional: Asset
Intensive 42,140 (23,392 ) (1) 21,586 (2) 40,334 Financial
Reinsurance 12,365 - -
12,365 Total U.S. and Latin America 72,348 (23,391 )
24,058 73,015 Canada Operations Traditional 22,727 (5,554 ) -
17,173 Canada Operations Non-Traditional 4,131
- - 4,131 Canada Operations
26,858 (5,554 ) - 21,304 EMEA Traditional 10,482 (49 ) - 10,433
EMEA Non-Traditional 19,634 (999 ) -
18,635 EMEA Operations 30,116 (1,048 ) -
29,068 Asia Pacific Traditional 52,648 - - 52,648 Asia Pacific
Non-Traditional 10,145 (21 ) -
10,124 Asia Pacific Operations 62,793 (21 ) - 62,772
Corporate and Other (7,990 ) 2,320 -
(5,670 ) Consolidated $ 184,125 $ (27,694 ) $
24,058 $ 180,489 (1) Asset Intensive is net of
$4,762 DAC offset. (2) Asset Intensive is net of $(13,713) DAC
offset.
(Unaudited)
Three Months Ended March 31, 2014
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. 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 Traditional 19,433 2,100 -
21,533 Canada Operations Non-Traditional 631
(41 ) 590 Canada Operations 20,064 2,059 -
22,123 EMEA Traditional (992 ) (1,131 ) (2,123 ) EMEA
Non-Traditional 16,197 (98 ) -
16,099 EMEA Operations 15,205 (1,229 ) - 13,976 Asia
Pacific Traditional 18,867 (120 ) 18,747 Asia Pacific
Non-Traditional 7,444 (1,533 )
5,911 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. REINSURANCE GROUP OF AMERICA, INCORPORATED
AND SUBSIDIARIES Per Share and Shares Data (In thousands, except
per share data) (Unaudited)
Three Months Ended March 31,
2015 2014
Diluted earnings per share from operating income $ 1.77 $ 1.61
Earnings per share from net income: Basic earnings per share
$ 1.84 $ 1.94 Diluted earnings per share $ 1.81 $ 1.92
Weighted average number of common and
common equivalent shares outstanding
68,942 71,264 (Unaudited) At or For the Three
Months Ended March 31,
2015 2014 Treasury
shares 12,699 9,624 Common shares outstanding 66,439 69,514 Book
value per share outstanding $ 107.62 $ 89.92 Book value per share
outstanding, before impact of AOCI $ 79.26 $ 71.51
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Dollars in thousands)
(Unaudited) Three
Months Ended March 31, Revenues:
2015
2014 Net premiums $ 2,023,852 $ 2,100,637 Investment
income, net of related expenses 426,891 404,375 Investment related
gains (losses), net: Other-than-temporary impairments on fixed
maturity securities (2,527 ) (303 )
Other-than-temporary impairments on fixed
maturity securities transferred to (from) accumulated other
comprehensive income
- - Other investment related gains (losses), net 10,110
84,874 Total investment related gains
(losses), net 7,583 84,571 Other revenue 62,287
67,590 Total revenues 2,520,613
2,657,173 Benefits and expenses: Claims and other
policy benefits 1,775,451 1,843,677 Interest credited 120,678
110,594 Policy acquisition costs and other insurance expenses
277,043 354,873 Other operating expenses 121,618 110,936 Interest
expense 35,627 35,084 Collateral finance and securitization expense
6,071 2,569 Total benefits and expenses
2,336,488 2,457,733 Income
before income taxes 184,125 199,440 Income tax expense
59,011 62,776 Net income $ 125,114 $
136,664
Reinsurance Group of America, IncorporatedJeff Hopson,
636-736-7000Senior Vice President – Investor Relations
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