Business Context and Reporting Period
Company: Reinsurance Group of America, Inc. (RGA)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1998
Business Overview: RGA is an insurance holding company primarily engaged in life reinsurance and international life and disability insurance on a direct and reinsurance basis. As of December 31, 1998, the Company held approximately $6.3 billion in consolidated assets. The Company operates through five main geographic segments: U.S., Canada, Latin America, Asia Pacific, and Other International. The U.S. operations represented 70.5% of net premiums in 1998.
Corporate Structure: RGA is a holding company whose principal assets consist of the common stock of Reinsurance Company of Missouri, Inc. (RCM) and RGA International, Ltd. GenAmerica Corporation beneficially owned approximately 64% of RGA's voting shares as of year-end 1998.
Key Financial Metrics
The following metrics are derived from the Consolidated Financial Statements and Supplementary Data included in the filing.
Revenue and Profitability
| Metric (in millions) | 1998 | 1997 | 1996 |
|---|---|---|---|
| Net Premiums | $1,016.4 | $744.8 | $617.7 |
| Gross Premiums | $1,264.7 | $901.3 | $772.3 |
| Investment Income | $301.8 | $187.1 | $135.8 |
| Net Benefits, Claims, and Losses | ($951.1) | ($661.4) | ($518.2) |
| Operating Expenses | ($189.0) | ($151.6) | ($125.7) |
| Diluted EPS (Continuing Ops) | $2.08 | $1.89 | $1.52 |
Balance Sheet and Liquidity
| Metric (in millions) | 1998 | 1997 |
|---|---|---|
| Total Investments | $5,129.6 | $4,571.0 (Policy Reserves) |
| Fixed Maturities (Fair Value) | $3,701.6 | N/A |
| Policy Loans | $513.9 | N/A |
| Short-term Investments | $315.0 | N/A |
| Regulatory Capital & Surplus (RGA Reinsurance) | $359.6 | N/A |
| Regulatory Capital & Surplus (RGA Canada) | $103.9 | N/A |
Note: The filing text does not provide a consolidated total assets figure in the narrative, though it states approximately $6.3 billion in consolidated assets. Specific debt figures are not explicitly listed in the provided text, though the Company holds an "A" long-term debt rating from S&P and "Baa1" from Moody's.
Reinsurance Business in Force
| Segment | 1998 (Billions) | 1997 (Billions) |
|---|---|---|
| U.S. Operations | $255.7 | $171.7 |
| Canada Operations | $35.5 | $27.7 |
| Latin America Operations | $35.1 | $26.1 |
| Asia Pacific Operations | $3.8 | $1.8 |
| Total | $330.6 | $227.3 |
Material Changes vs. Prior Period
- Revenue Growth: Net premiums increased 36.5% from $744.8 million in 1997 to $1,016.4 million in 1998. Gross premiums increased 40.3%.
- Earnings Growth: Consolidated income from continuing operations before income taxes and minority interest increased 21.7% in 1998. Diluted earnings per share from continuing operations rose to $2.08 from $1.89 in 1997.
- Segment Performance:
- U.S.: Continued strong performance in traditional reinsurance and growth in non-traditional products (asset-intensive and financial reinsurance).
- Canada: Significant growth in new business volume ($12.8 billion in 1998 vs. $8.0 billion in 1997).
- Latin America: Growth driven by direct business in Chile and Argentina, though new contracts for privatized pension products in Argentina ceased in July 1998.
- Asia Pacific: Mixed results; improving performance in Australia offset by losses in Hong Kong due to increased lapse rates and economic slowdown.
- Discontinued Operations: The accident and health division was classified as a discontinued operation. The Company recorded pre-tax charges of $32.0 million in 1998 (vs. $21.0 million in 1997) to increase reserves for the run-off of this business.
Guidance, Outlook, and Risks
Management Commentary and Outlook
Management attributes earnings growth to strong performance in traditional reinsurance in the U.S. and Canada, as well as growth in non-traditional products. The Company expects sustained growth in premiums to lessen the burden of start-up costs in developing international markets. Expansion initiatives include opening a representative office in Buenos Aires in 1999 and licensing a life reinsurance subsidiary in London.
Risks and Contingencies
- Regulatory Changes: The NAIC's "Valuation of Life Insurance Policies Model Regulation" may require increased reserves for level term life insurance products with guaranteed premiums exceeding five years, potentially impacting statutory surplus. The Company cannot predict the impact of future legislation on operations.
- Dividend Restrictions: Dividend payments from subsidiaries are restricted by insurance laws. Under Missouri law, RGA Reinsurance could pay up to $36.0 million in dividends in 1999 without prior regulatory approval. Under the NAIC Model Act, this limit would have been $12.8 million.
- Retrocession Risk: While the Company has never experienced a material default from retrocessionaires, there is no assurance regarding future performance or recoverability of claims.
- Concentration Risk: In 1998, five clients ceded 32.0% of U.S. operations gross premiums. One client accounted for more than 10% of U.S. operations gross premiums.
- Market Risk: The Company is exposed to investment risks, particularly in asset-intensive products where investment income is offset by earnings credited to ceding companies.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sufficiency of the $32.0 million reserve increase for the run-off of the accident and health division and the timeline for claim payments.
- Regulatory Capital Adequacy: Confirm that RGA Reinsurance ($359.6M surplus) and RGA Canada ($103.9M surplus) remain in compliance with Risk-Based Capital (RBC) and Minimum Continuing Capital and Surplus Requirements (MCCSR) guidelines, especially given potential changes in reserve requirements.
- Client Concentration: Assess the risk associated with the top five U.S. clients representing 32% of U.S. gross premiums and the potential impact of their financial stability on RGA's revenue.
- Asia Pacific Exposure: Review the specific causes of losses in Hong Kong operations and the Company's strategy to mitigate lapse rates in that region.
- Dividend Capacity: Evaluate the Company's ability to maintain dividend payouts given the regulatory caps on subsidiary dividends and the potential for stricter NAIC regulations.