REINSURANCE GROUP OF AMERICA INC annual report, FY2022

Reinsurance Group of America, Incorporated — 2022 Form 10-K Summary

Business context and reporting period

RGA is a global provider of traditional life and health reinsurance and financial solutions, including longevity, asset-intensive, capital solutions and stable value products. Operations span the U.S. and Latin America, Canada, EMEA, Asia Pacific and Corporate and Other. This filing covers the fiscal year ended December 31, 2022, with comparisons primarily to 2021.

Life reinsurance in force was $3.4 trillion and total assets were $84.7 billion at year-end.
Approximately 3,800 employees supported global operations.
Gross premiums and other revenues from the five largest clients were approximately $2.6 billion, or 18% of the consolidated total; no individual client represented 10% or more.

Financial performance and condition

Metric	2022	2021	Change
Net premiums	$13.078 billion	$12.513 billion	+$565 million
Total revenues	$16.258 billion	$16.658 billion	-$400 million
Income before income taxes	$831 million	$691 million	+$140 million
Net income	$627 million	$617 million	+$10 million
Net income available to shareholders	$623 million	$617 million	+$6 million
Diluted EPS	$9.21	$9.04	+$0.17
Net cash from operating activities	$1.343 billion	$4.182 billion	-$2.839 billion
Total assets	$84.706 billion	$92.175 billion	-$7.469 billion
Total equity	$4.235 billion	$13.014 billion	-$8.779 billion

Approximate margins were 5.1% on pretax income and 3.9% on net income, based on total revenues. The effective tax rate increased to 24.6% from 10.6%, primarily due to foreign jurisdiction tax differences, Subpart F income and GILTI, partly offset by foreign tax credits.

Claims and other policy benefits declined to $12.046 billion from $12.776 billion, reflecting lower COVID-19-related mortality claims and favorable non-COVID-19 experience in several traditional segments.
RGA estimated approximately $451 million of COVID-19-related life and health claim costs in 2022, including incurred-but-not-reported claims; approximately $336 million related to U.S. and Latin America Traditional.
Investment-related gains and losses shifted to a net loss of $506 million from a $560 million gain. The 2022 result included $204 million of realized losses from portfolio repositioning, unfavorable derivative fair-value changes and wider credit spreads.
Net investment income increased modestly to $3.161 billion, although the average investment yield excluding spread-related business declined to 4.69% from 4.99%, mainly because of lower variable income from limited partnerships.
Cash and invested assets declined to $73.407 billion from $81.476 billion. Fixed maturity securities were $52.901 billion, or 72.0% of cash and invested assets; approximately 94.3% of the fixed maturity portfolio was investment grade.
Gross unrealized losses on fixed maturity securities increased substantially to approximately $7.3 billion from $349 million, principally due to higher interest rates. Management stated that it generally had the intent and ability to hold affected securities until recovery.

Material changes versus the prior comparable period

U.S. and Latin America pretax income improved to $467 million from a $25 million loss, primarily from lower mortality claims and favorable individual mortality experience.
EMEA pretax income increased to $206 million from $64 million, led by improved traditional mortality experience and lower COVID-19 claims, partly offset by weaker investment results.
Asia Pacific pretax income increased to $276 million from $88 million, driven by favorable traditional claims experience and higher investment income; Financial Solutions declined to an $18 million loss because of derivative valuation losses and higher claims and expenses.
Canada pretax income decreased to $118 million from $143 million due to unfavorable mortality and group claims experience and lower investment income.
Corporate and Other moved to a $236 million pretax loss from $421 million of income, largely because 2021 included significant investment-related benefits and accounting corrections.
Life reinsurance in force declined to $3.401 trillion from $3.467 trillion. New business production was $408.9 billion versus $412.1 billion, while lapses, mortality and foreign exchange reduced in-force amounts.
RGA issued $700 million of 7.125% subordinated debentures due 2052, redeemed the remaining 2042 debentures and ended the year with $3.961 billion of long-term debt, compared with $3.667 billion in 2021.
Shareholders received $205 million of dividends, or $3.06 per share, and RGA repurchased 599,254 shares for $75 million.

Liquidity, debt and capital

Management stated that available cash flows and liquidity sources were sufficient for at least the next twelve months under scenarios including early recapture, market stress and elevated claims.
Liquidity, defined as cash, cash equivalents and short-term investments, was approximately $3.1 billion at year-end.
The company had $849 million available under its syndicated revolving credit facility, no cash borrowings under that facility and approximately $1.1 billion of additional borrowing capacity through the Federal Home Loan Bank of Des Moines.
Total debt agreements were $4.0 billion at year-end, and the company reported compliance with all debt covenants. Covenants include minimum consolidated net worth of $5.3 billion and a maximum consolidated indebtedness-to-capitalization ratio of 35%.
Approximately $128 million of bank letters of credit supported third-party obligations, and approximately $1.5 billion of letters of credit supported intercompany reinsurance arrangements.
RGA’s insurance subsidiaries exceeded applicable minimum risk-based-capital or local regulatory capital requirements, but dividend capacity remains subject to insurance regulation and statutory earnings and surplus.

Guidance, outlook, commentary, risks and unusual items

The filing does not provide formal earnings or revenue guidance. Management expects continued demand for traditional reinsurance, longevity solutions, capital efficiency transactions and pension risk transfer products. RGA entered the U.S. pension risk transfer market in the fourth quarter of 2022.

Key risks include mortality and morbidity deviations, COVID-19 or future pandemics, longevity experience, lapses and surrenders, inadequate pricing or reserves, counterparty and retrocessionaire performance, credit losses, interest-rate and equity-market volatility, foreign exchange, regulatory capital requirements and competition.
Recapture rights, collateral requirements and ratings downgrades could require asset transfers, additional collateral or capital and could reduce future premiums or liquidity.
RGA reported no material litigation and no material cybersecurity breach identified as of the filing date, but adverse litigation, regulatory actions, privacy events or cyber incidents could still be material.
Management identified substantial actuarial and valuation judgment in future policy benefits, embedded derivatives, deferred acquisition costs, premiums receivable and Level 3 investments.
The company adopted ASU 2018-12 for long-duration insurance contracts on January 1, 2023. Preliminary estimates indicated a decrease in retained earnings of approximately $600 million to $900 million and an increase in AOCI of approximately $2.9 billion to $4.9 billion at December 31, 2022, net of tax; the final impact was subject to refinement.
Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included Level 3 investment valuations, actuarial assumptions, premiums receivable estimates and implementation of ASU 2018-12.

Most important facts for an investor to verify

Whether post-2022 adoption of ASU 2018-12 produced an impact within or outside management’s preliminary equity estimates.
The sustainability of improved mortality experience and the extent to which COVID-19 claims continue to decline.
Exposure to unrealized investment losses, credit deterioration and potential realized losses if securities must be sold.
Statutory capital, RBC ratios, collateral availability and dividend capacity at major insurance subsidiaries.
Debt maturities, refinancing needs and the status of the syndicated revolving credit facility, which was scheduled to mature in August 2023.
Profitability and risk concentrations in asset-intensive, longevity and pension risk transfer transactions, including derivative and policyholder-behavior sensitivities.
Potential effects of recapture rights, ratings triggers, regulatory changes and counterparty or retrocessionaire stress.