Business Context and Reporting Period
Company: Reinsurance Group of America, Incorporated (RGA)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: RGA is a leading global life reinsurer providing traditional individual and group life, annuity, critical illness, and financial reinsurance. The company operates through five geographic segments: U.S., Canada, Europe & South Africa, Asia Pacific, and Corporate & Other. As of December 31, 2009, RGA held approximately $2.3 trillion of life reinsurance in force and $25.2 billion in consolidated assets.
Key Financial Metrics
| Metric | 2009 | 2008 | 2007 |
|---|---|---|---|
| Net Premiums | $5,725.2 million | $5,349.3 million | $4,909.0 million |
| Total Revenues | $7,066.8 million | $5,681.2 million | $5,718.4 million |
| Net Income | $407.1 million | $176.8 million | $293.8 million |
| Diluted EPS (Continuing Ops) | $5.55 | $2.88 | $4.80 |
| Total Assets | $25,249.5 million | $21,658.8 million | $21,598.0 million |
| Total Stockholders' Equity | $3,867.9 million | $2,616.8 million | $3,189.8 million |
| Long-Term Debt | $1,216.1 million | $918.2 million | $896.1 million |
| Cash & Cash Equivalents | $512.0 million | $875.4 million | $404.4 million |
Material Changes vs. Prior Period
- Profitability Surge: Net income from continuing operations increased 116.7% to $407.1 million in 2009 compared to $187.8 million in 2008. This was primarily driven by a favorable change in the fair value of embedded derivatives within the U.S. segment due to tightening credit spreads, offsetting investment impairments.
- Revenue Growth: Total revenues increased 24.4% to $7.07 billion, driven by a 7.0% increase in net premiums and a significant improvement in investment-related gains (net) which turned from a $647.2 million loss in 2008 to a $34.1 million gain in 2009.
- Investment Portfolio: Gross unrealized losses on fixed maturity and equity securities improved significantly from $1.42 billion at year-end 2008 to $585 million at year-end 2009. The company recorded $128.8 million in other-than-temporary impairments in 2009, compared to $113.3 million in 2008.
- Debt Activity: In November 2009, RGA issued $400 million of 6.45% Senior Notes due 2019. The company also repurchased $80.2 million of junior subordinated debentures, recording a pre-tax gain of $38.9 million.
Guidance, Outlook, and Risks
- Outlook: Management believes industry consolidation and reduced capital levels in the life insurance industry will continue to provide growth opportunities. The company expects to maintain its position as a leading life reinsurer in North America.
- Dividends: In January 2010, the quarterly dividend was increased to $0.12 per share from $0.09 per share.
- Key Risks:
- Market Volatility: Results are sensitive to changes in credit spreads, interest rates, and equity markets, particularly regarding embedded derivatives in annuity products.
- Liquidity & Capital: While the company maintains sufficient liquidity, adverse capital market conditions could limit access to capital or increase the cost of capital.
- Regulatory: Changes in statutory reserve requirements (e.g., Regulation XXX) may require increased collateral, potentially straining liquidity.
- Counterparty Risk: Reliance on ceding companies for accurate data and retrocessionaires for claims recovery.
Investor Verification Checklist
- Embedded Derivatives: Verify the sensitivity of earnings to changes in credit spreads and interest rates, as these drove the majority of the 2009 income improvement.
- Investment Impairments: Review the composition of the $128.8 million in other-than-temporary impairments and the remaining $585 million in gross unrealized losses to assess future earnings volatility.
- Regulatory Capital: Confirm the sufficiency of collateral for statutory reserves, particularly regarding Regulation XXX requirements and the $850 million Collateral Finance Facility.
- Dividend Sustainability: Assess the ability of operating subsidiaries to pay dividends to the holding company given Missouri statutory restrictions (approx. $141.3 million and $146.6 million available without prior approval for RCM and RGA Reinsurance, respectively).
- Foreign Currency: Monitor the impact of foreign exchange fluctuations on international segments, which unfavorably affected net premiums by approximately $207.6 million in 2009.