Business Context and Reporting Period
Reinsurance Group of America, Incorporated (RGA) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2023. RGA provides traditional life, health, disability and critical illness reinsurance, as well as financial solutions including longevity, asset-intensive, capital and financial reinsurance. Life reinsurance in force was approximately $3.5 trillion at quarter-end; total assets were $89.0 billion.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net premiums | $3.337 billion | $3.230 billion | $6.722 billion | $6.385 billion |
| Net investment income | $857 million | $754 million | $1.713 billion | $1.564 billion |
| Investment-related gains (losses), net | $(123) million | $(240) million | $(200) million | $(379) million |
| Total revenues | $4.156 billion | $3.903 billion | $8.407 billion | $7.820 billion |
| Income before taxes | $265 million | $147 million | $616 million | $414 million |
| Net income attributable to RGA shareholders | $205 million | $105 million | $457 million | $302 million |
| Diluted EPS | $3.05 | $1.55 | $6.77 | $4.46 |
Calculated pretax margins were approximately 6.4% in Q2 2023 versus 3.8% in Q2 2022, and 7.3% for the first six months versus 5.3% in the prior-year period. Net margins attributable to RGA shareholders were approximately 4.9% versus 2.7% for the quarter and 5.4% versus 3.9% year to date.
- Operating cash flow was $1.818 billion for the first six months of 2023, compared with $242 million in the prior-year period.
- Cash and cash equivalents were $2.598 billion at June 30, 2023, down from $2.927 billion at December 31, 2022. Management reported total liquidity of approximately $2.8 billion, including cash, cash equivalents and short-term investments.
- Total investments were $74.290 billion, including $56.236 billion of fixed-maturity securities available for sale. Approximately 94.3% of fixed-maturity securities were investment grade.
- Long-term debt was $4.850 billion, compared with $3.961 billion at year-end 2022. Average interest rates on long-term debt were 5.06% at June 30, 2023 versus 4.71% at year-end.
- Total shareholders’ equity was $7.895 billion, compared with $7.171 billion at December 31, 2022.
Material Changes Versus the Prior Comparable Period
- Quarterly net income attributable to RGA shareholders increased $100 million, or approximately 95%, while six-month income increased $155 million, or approximately 51%.
- Higher net investment income reflected a larger invested asset base and higher yields on new investments. However, variable investment income from limited partnerships and real estate joint ventures declined.
- Investment-related losses improved by $117 million in the quarter and $179 million year to date, principally because derivative fair-value losses were lower than in 2022.
- Claims and other policy benefits increased $75 million in the quarter and $267 million year to date, partially offset by favorable future-policy-benefit remeasurement results year to date.
- Results benefited from favorable claims experience in U.S. and Latin America and Asia Pacific Traditional businesses relative to the prior-year period, when COVID-19 claims were elevated.
- Asia Pacific pretax income increased to $109 million from $5 million in Q2 and to $175 million from $57 million year to date, driven by higher investment income, business growth and lower investment-related losses.
- U.S. and Latin America Financial Solutions pretax income increased to $68 million from $43 million in Q2 and to $182 million from $100 million year to date, largely due to derivative and market risk benefit movements.
- RGA adopted ASU 2018-12 for long-duration insurance contracts in the first quarter of 2023. The adoption materially changed reserve, discount-rate, DAC and market-risk-benefit accounting and affected presentation and previously reported amounts.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide a formal earnings or revenue guidance range. Management stated that liquidity and capital resources are expected to be sufficient for at least the next 12 months, including under scenarios involving early treaty recaptures, market events and higher-than-expected claims.
- Management expects to complete its annual cash-flow assumption review during the third quarter of 2023. No material assumption changes were made during the first six months.
- The company issued $400 million of 6.0% senior notes due 2033, intended to repay $400 million of senior notes maturing in September 2023, and a subsidiary issued $500 million of 7.125% surplus notes due 2043.
- RGA entered into a new five-year, $850 million revolving credit facility maturing in March 2028. No borrowings or undrawn letters of credit were outstanding under the facility at June 30, 2023. Additional FHLB collateralized borrowing capacity was approximately $745 million.
- RGA repurchased 722,774 shares for $100 million during the first six months and paid $107 million in dividends. The board subsequently declared a quarterly dividend of $0.85 per share in August 2023.
- Fixed-maturity securities had $6.6 billion of gross unrealized losses at quarter-end, primarily due to interest-rate and credit-spread movements. Management stated it did not intend, and was not required, to sell the affected securities based on current conditions.
- Principal risks include mortality and morbidity experience, lapsation, reserve adequacy, interest rates, equity and credit markets, investment impairments, collateral requirements, liquidity, counterparty and retrocessionaire performance, foreign exchange, regulation, litigation, catastrophes, technology and cybersecurity.
- Two major reinsurers represented approximately 77% of reinsurance ceded receivables and other at quarter-end. Management reported no allowance was necessary for ceded reinsurance receivables.
- Statutory reserve-support commitments have maximum potential obligations totaling approximately $26.9 billion across stated maturity years, although management considered required funding remote.
- Management did not identify pending litigation or regulatory matters expected to have a material adverse effect, but acknowledged that outcomes could be material for a particular reporting period.
Investor Verification Checklist
- Verify the sustainability of earnings excluding volatile derivative, market-risk-benefit and investment-related fair-value movements.
- Assess the effect of the third-quarter annual assumption review on future policy benefit reserves and earnings.
- Review reserve and claims trends by geography, particularly U.S. individual mortality, EMEA mortality and Asia Pacific underwriting experience.
- Evaluate the credit quality, unrealized losses, mortgage exposure and liquidity of the investment portfolio.
- Confirm debt maturities, covenant compliance, rating-sensitive derivative provisions and available borrowing capacity.
- Reconcile the reported cash flow improvement with the composition of premiums, deposits, withdrawals, debt issuance and investment activity.
- Consider the accounting and comparability effects of ASU 2018-12 when comparing 2023 results with previously reported periods.