Business Context and Reporting Period
Company: Reinsurance Group of America, Inc. (RGA)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1998
Business Overview: RGA operates as a global reinsurer with primary divisions in U.S. Operations (Traditional and Asset-Intensive), Canadian Operations, Other International (Latin America, Asia Pacific), and Accident & Health. The company is currently in a run-off phase for its Accident & Health segment.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 1998 | Nine Months Ended Sep 30, 1998 |
|---|---|---|
| Net Premiums | $276,371 | $822,884 |
| Total Revenues | $355,650 | $1,051,441 |
| Net Income | $20,657 | $55,783 |
| Diluted EPS | $0.68 | $2.01 |
| Investment Income (Net) | $71,702 | $207,606 |
| Total Assets | $5,846,456 (as of Sep 30, 1998) | |
| Total Liabilities | $5,054,323 (as of Sep 30, 1998) | |
| Stockholders' Equity | $784,697 (as of Sep 30, 1998) | |
| Long-Term Debt | $107,695 (as of Sep 30, 1998) | |
| Cash Flow from Operations (9mo) | $86,764 |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net premiums increased 39.6% ($78.5 million) in Q3 1998 compared to Q3 1997, and 36.0% ($218.0 million) for the nine-month period. Growth was driven by new in-force blocks, renewals, and facultative treaties.
- Profitability: Net income rose 43.7% in Q3 1998 ($20.7 million vs. $14.4 million) and 72.7% for the nine-month period ($55.8 million vs. $32.3 million). Diluted EPS increased from $0.56 to $0.68 in Q3 and from $1.26 to $2.01 for the nine months.
- Investment Portfolio: Total invested assets grew 26.4% to $4.6 billion, fueled by operating cash flows, asset-intensive product deposits ($486.7 million), and proceeds from a June 1998 stock offering ($221.8 million).
- Segment Performance:
- U.S. Operations: Income before taxes increased due to asset-intensive business earnings and traditional reinsurance growth (premiums up 17.2% in Q3).
- Canadian Operations: Premiums surged 45.7% in Q3, offsetting unfavorable mortality experience.
- Other International: Turned a $2.0 million loss in Q3 1997 into a $0.4 million profit in Q3 1998, driven by Latin America and Asia Pacific growth.
- Accident & Health: Reported a loss of $1.5 million in Q3 1998, an improvement from the $1.7 million loss in Q3 1997 (which included an $18.0 million pool charge in Q1 1997).
Guidance, Outlook, and Risks
- Capital Resources: In June 1998, RGA completed a public offering of 4.9 million non-voting common shares, raising approximately $221.8 million for general business growth. The company maintains a $25.0 million line of credit, with $15.0 million drawn as of September 30, 1998.
- Accident & Health Strategy: Management has ceased marketing new accident and health business and is running off existing contracts. Premiums are expected to decline significantly in 1999 and beyond.
- Year 2000 Compliance: The company is on schedule to be substantially compliant by March 31, 1999. Costs incurred through September 30, 1998, were approximately $265,000, with total expected costs under $600,000. Risks remain regarding external vendors and ceding companies failing to comply.
- Investment Yield: The average earned yield on the consolidated portfolio decreased to 6.97% for the nine months ended September 30, 1998, from 7.25% in the prior year, attributed to lower interest rates and the addition of shorter-duration stable value assets.
- Forward-Looking Risks: Key risks include general economic conditions, mortality and claims experience fluctuations, competitive factors, stability of foreign governments, and interest rate volatility.
- Stock Offering Impact: Verify the utilization of the $221.8 million raised in the June 1998 non-voting stock offering and its effect on diluted share count.
- Asset-Intensive Deposits: Confirm the stability of the $602.8 million increase in deposits related to asset-intensive reinsurance (primarily from General American Life Insurance Company).
- Accident & Health Run-off: Monitor the volatility of reserves and claims in the run-off Accident & Health segment, particularly regarding aviation accident estimates.
- Year 2000 Contingencies: Assess the status of compliance letters from external trading partners and ceding companies, as RGA has no direct control over their readiness.
- Mortality Trends: Review ongoing mortality experience in Canadian and Latin American operations, which have shown fluctuations impacting loss ratios.