RGA 10-Q Summary: Quarter Ended September 30, 2023
Business Context and Reporting Period
Reinsurance Group of America, Incorporated provides traditional life, health, disability and critical illness reinsurance, together with financial solutions including longevity reinsurance, asset-intensive products, pension risk transfer, financial reinsurance, capital solutions and stable value products. The filing covers the three and nine months ended September 30, 2023, with comparative periods in 2022. RGA reported approximately $3.5 trillion of life reinsurance in force and $87.4 billion of assets at quarter-end.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenues | $5,153 million | $4,050 million | $13,560 million | $11,870 million |
| Net premiums | $4,255 million | $3,247 million | $10,977 million | $9,632 million |
| Net investment income | $922 million | $769 million | $2,635 million | $2,333 million |
| Income before taxes | $380 million | $(77) million | $996 million | $337 million |
| Net income attributable to RGA shareholders | $287 million | $(76) million | $744 million | $226 million |
| Diluted EPS | $4.29 | $(1.13) | $11.06 | $3.35 |
| Operating cash flow | Not separately provided | Not separately provided | $2,818 million | $1,077 million |
Approximate consolidated net margins were 5.6% in Q3 2023 and 5.5% for the first nine months of 2023, based on net income attributable to RGA shareholders divided by total revenues. The effective tax rate was 24.2% for the quarter and 24.9% year to date.
- Total assets were $87.4 billion, up from $84.9 billion at December 31, 2022.
- Total investments were $72.2 billion, including $54.2 billion of fixed maturity securities and $7.2 billion of mortgage loans.
- Cash and cash equivalents were $2.8 billion; management reported a liquidity position of approximately $3.0 billion including short-term investments.
- Total equity was $8.2 billion, compared with $7.2 billion at year-end 2022.
- Long-term debt was $4.5 billion, compared with $4.0 billion at year-end 2022; the average interest rate was 5.10%.
Material Changes Versus the Prior Comparable Period
- Quarterly net income attributable to shareholders improved by $363 million, from a $76 million loss to $287 million of income. Nine-month income increased by $518 million to $744 million.
- Revenue growth was driven primarily by higher premiums, including single-premium pension risk transfer transactions, organic growth and new business. Consolidated life reinsurance in force increased to $3,499.4 billion from $3,272.6 billion at September 30, 2022.
- Net investment income increased because of a larger invested asset base and higher yields on new investments. The quarterly average investment yield excluding spread-related business increased to 4.72% from 4.40%; the nine-month yield declined to 4.62% from 4.78% because of lower variable investment income.
- Future policy benefits remeasurement produced a $3 million gain in Q3 2023, compared with a $326 million loss in Q3 2022. Year-to-date remeasurement was a $95 million gain versus a $302 million loss in the prior year.
- Market risk benefits produced a $21 million quarterly gain and $38 million year-to-date gain, compared with losses of $23 million and $29 million, respectively, in the prior-year periods.
- U.S. and Latin America income before tax increased to $213 million in Q3 and $578 million year to date, while Asia Pacific increased to $118 million and $293 million. EMEA declined to $24 million in Q3 and $166 million year to date, primarily because of unfavorable mortality and assumption updates in Traditional business.
- RGA adopted ASU 2018-12 for long-duration insurance contracts in the first quarter of 2023. The standard materially changed reserve, discount-rate, deferred acquisition cost and market-risk-benefit accounting and affected the presentation and comparability of prior periods.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide quantitative earnings guidance. Management states that current cash flows and available sources of liquidity are expected to satisfy requirements for at least the next 12 months under scenarios including early recapture, market events and higher-than-expected claims.
- Management identified mortality and morbidity as the most significant risks. Other major exposures include lapse and surrender activity, longevity, interest rates, credit spreads, foreign currency movements, equity markets, investment impairments, collateral requirements, counterparty and retrocessionaire performance, regulatory actions, litigation and operational or cybersecurity failures.
- Gross unrealized losses on fixed maturity securities increased to $8.5 billion from $7.3 billion at December 31, 2022. Management stated that it did not intend, and was not more likely than not, to sell the affected securities before recovery, subject to ongoing credit and liquidity monitoring.
- The company issued $400 million of 6.0% senior notes due 2033 and $500 million of 7.125% surplus notes due 2043. The $400 million senior notes refinanced debt maturing in September 2023.
- RGA entered into a new $850 million five-year revolving credit facility maturing in March 2028. No borrowings or undrawn letters of credit were outstanding under the facility at September 30, 2023. Additional reported liquidity included $766 million of FHLB borrowing capacity.
- RGA repurchased 1.07 million shares for $150 million during the first nine months and had approximately $200 million remaining under its authorization. The board declared a quarterly dividend of $0.85 per share in October 2023.
- The company disclosed an October 2023 cybersecurity incident involving unauthorized access to certain technology systems. Based on its investigation at the filing date, RGA did not believe policyholder data had been accessed or extracted or that the incident would have a material adverse effect, although incremental response and remediation costs may continue.
- Management does not expect pending litigation or regulatory matters to have a material adverse effect based on current knowledge, but acknowledges that outcomes could be material in a particular reporting period.
Most Important Facts for Investors to Verify
- Whether favorable Q3 results, particularly reserve remeasurement gains and claims experience, persist or reverse as mortality and other assumptions develop.
- The sensitivity of earnings, equity and liquidity to interest rates, credit spreads, unrealized investment losses, derivative valuations and collateral requirements.
- The credit quality and liquidity of the fixed maturity and mortgage loan portfolios, including the $8.5 billion of gross unrealized fixed-maturity losses and rising mortgage-loan credit-loss allowances.
- The concentration of funds withheld and reinsurance ceded receivables, including approximately 68% of ceded receivables held with two major reinsurers.
- The effect of ASU 2018-12 on reserve trends, earnings volatility, accumulated other comprehensive income and comparisons with prior periods.
- The sustainability of capital returns given $4.5 billion of debt, regulatory capital requirements, subsidiary dividend capacity and remaining share-repurchase authorization.
- Subsequent developments related to the cybersecurity incident, including scope, remediation costs, regulatory notifications and any impact on operations or policyholder data.