Reinsurance Group of America, Incorporated: FY2023 Form 10-K Summary
Business context and reporting period
RGA is a global life and health reinsurer offering traditional life, health, disability, critical illness and long-term-care reinsurance, plus financial solutions including longevity, asset-intensive, pension risk transfer, capital solutions and stable-value products. Operations span the U.S., Latin America, Canada, EMEA and Asia Pacific.
This Form 10-K covers the fiscal year ended December 31, 2023. The company adopted ASU 2018-12, the long-duration insurance accounting standard, in the first quarter of 2023 with retrospective transition effects. RGA reported $3.7 trillion of life reinsurance in force and $97.6 billion of total assets at year-end.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net premiums | $15.085 billion | $13.078 billion | +15.3% |
| Total revenues | $18.567 billion | $16.227 billion | +14.4% |
| Net investment income | $3.591 billion | $3.161 billion | +13.6% |
| Investment-related gains (losses), net | $(481) million | $(539) million | Improved by $58 million |
| Income before income taxes | $1.160 billion | $718 million | +61.6% |
| Net income | $909 million | $521 million | +74.5% |
| Net income available to shareholders | $902 million | $517 million | +74.5% |
| Diluted EPS | $13.44 | $7.64 | +75.9% |
| Net cash from operating activities | $4.044 billion | $1.343 billion | +201.3% |
| Total assets | $97.623 billion | $84.904 billion | +15.0% |
| Shareholders’ equity | $9.081 billion | $7.081 billion | +28.2% |
Net income margin was approximately 4.9% of revenue in 2023 versus 3.2% in 2022. The effective tax rate declined to 21.8% from 27.3%. RGA declared $3.30 per share of dividends and paid $219 million of dividends in 2023.
Fourth-quarter 2023 revenue was $5.007 billion, income before taxes was $164 million, net income was $160 million and diluted EPS was $2.37. Fourth-quarter results were below the third quarter, which reported $380 million of pretax income and $289 million of net income.
Liquidity, investments and debt
- Cash and cash equivalents were $2.970 billion; total cash and invested assets were $81.870 billion.
- Liquidity, defined as cash, cash equivalents and short-term investments, was approximately $3.2 billion at year-end.
- Net cash used in investing activities was $4.066 billion, reflecting continued investment of operating cash flows.
- Long-term debt was $4.427 billion, compared with $3.961 billion in 2022; the average interest rate increased to 5.09% from 4.71%.
- RGA issued $400 million of 6.00% senior notes due 2033 and Chesterfield Re issued $500 million of 7.125% surplus notes due 2043, with $475 million outstanding at year-end.
- The company had an $850 million syndicated revolving credit facility, with no cash borrowings or undrawn letters of credit outstanding under that facility at year-end.
- Fixed maturity securities were $60.467 billion, or 73.9% of total cash and invested assets; approximately 94.3% were investment grade.
- Gross unrealized losses on fixed maturity securities declined to $5.6 billion from $7.3 billion, while gross unrealized gains increased to $1.1 billion from $0.6 billion.
- RGA reported compliance with debt covenants and stated that available liquidity should satisfy requirements for at least the next twelve months.
Material changes versus the prior comparable period
- Growth in net premiums was driven primarily by single-premium pension risk transfer transactions, organic growth and new business. New life business production declined to $363.1 billion from $408.9 billion, while total life reinsurance in force increased to $3.704 trillion from $3.401 trillion.
- Claims experience improved, particularly in U.S. and Latin America Traditional and Asia Pacific Traditional, as COVID-19-related claims declined substantially from 2022.
- Future policy benefits remeasurement changed from a $291 million loss in 2022 to a $62 million gain in 2023. The 2023 annual assumption review was favorable in Financial Solutions but unfavorable in Traditional business.
- Net investment income benefited from a larger average invested-asset base and higher rates on new investments, partly offset by lower variable income from limited partnerships and real estate joint ventures.
- Corporate and Other remained loss-making, with a pretax loss of $236 million versus $225 million, primarily reflecting higher interest expense and investment-related losses.
- Asia Pacific pretax income increased to $485 million from $240 million, while EMEA increased to $280 million from $228 million and Canada increased to $143 million from $135 million. U.S. and Latin America increased to $488 million from $340 million.
- RGA paid $227 million for treasury stock in 2023 and repurchased 1.372 million shares under its program. On January 23, 2024, the board authorized a new $500 million repurchase program with no expiration date.
- In the fourth quarter, RGA launched Ruby Re as a sponsored but unconsolidated entity and retroceded $2.5 billion of existing asset-intensive liabilities through a coinsurance funds-withheld transaction.
Guidance, outlook, commentary and risks
Management did not provide a specific earnings or revenue guidance range in the supplied filing. Management expects continued demand for traditional reinsurance and financial solutions, supported by aging populations, growth in international middle classes, pension risk transfer activity, capital optimization needs and regulatory or accounting changes.
Management stated that mortality and morbidity remain the company’s most significant risks, that its capital base is adequate at current operating levels, and that reserves and current liquidity sources are expected to support obligations for at least the next twelve months. The company also stated that it would not expect to need capital augmentation solely from interest rates remaining at current levels for five years, assuming other factors remain constant.
- Insurance risks include adverse mortality, morbidity, longevity, lapse, surrender and policyholder behavior; reserve adequacy depends on actuarial assumptions and estimates.
- Investment risks include credit defaults, interest rates, foreign exchange, real estate exposure, illiquidity and valuation volatility. A 100-basis-point increase in rates was estimated to reduce the fair value of fixed maturity securities by approximately $4.660 billion.
- Asset-intensive and variable-annuity results can be volatile because of embedded derivatives, market risk benefits, equity markets, interest rates, volatility and hedging effectiveness.
- Regulation XXX, principles-based reserves, collateral availability, letters of credit and evolving capital standards could increase capital needs or constrain new business.
- RGA is dependent on dividends from regulated subsidiaries to fund holding-company obligations. As of January 1, 2024, RGA Reinsurance could pay approximately $532 million of dividends without prior approval, subject to statutory conditions and upstream restrictions.
- Recapture rights, rating downgrades or regulatory deterioration could require additional collateral, asset transfers, payments or loss of future treaty profits. No additional collateral posting or rating-triggered recapture occurred through year-end 2023.
- Cybersecurity incidents, privacy regulation, third-party failures, litigation, tax-law changes and global economic or geopolitical conditions could adversely affect results. The company reported no material cybersecurity breach and no material litigation at filing.
- RGA adopted a new risk appetite and tolerance framework effective January 1, 2024. Bermuda’s 15% corporate income tax regime generally applies beginning in 2025, and Pillar II global minimum-tax rules may affect future taxes; the impact remains under evaluation.
Most important facts for investors to verify
- Reconcile reported earnings growth with the unusually favorable change in future policy benefits remeasurement and the reduction in COVID-19 claims.
- Assess the sustainability and risk profile of pension risk transfer and asset-intensive growth, including associated reserve increases, surrender behavior and investment spreads.
- Review the composition, duration, unrealized losses and credit quality of the $60.5 billion fixed maturity portfolio, including mortgage and real-estate exposure.
- Evaluate statutory capital, RBC ratios, dividend capacity, collateral requirements and the potential effect of new U.S., Bermuda and international capital standards.
- Review debt maturities, interest costs, covenant thresholds, letters of credit and the dependence of the holding company on subsidiary dividends.
- Understand the financial, counterparty and liquidity implications of the Ruby Re retrocession and other funds-withheld arrangements.
- Monitor actuarial assumption changes, particularly mortality, longevity, morbidity, lapse and discount-rate assumptions, as well as the sensitivity disclosures.
- Confirm the effect of ASU 2018-12 on comparability, retained earnings, accumulated other comprehensive income and future earnings volatility.