RGA 2022 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
Reinsurance Group of America, Incorporated provides global life, health, disability, critical illness, longevity, annuity, financial reinsurance, capital solutions and stable-value reinsurance. The filing covers the quarter ended March 31, 2022. RGA reported approximately $3.5 trillion of life reinsurance in force and $89.8 billion of assets at quarter-end.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net premiums | $3,155 million | $2,914 million |
| Total revenues | $3,930 million | $4,119 million |
| Net investment income | $810 million | $812 million |
| Investment-related gains (losses), net | $(126) million | $302 million |
| Total benefits and expenses | $3,990 million | $3,933 million |
| Income (loss) before taxes | $(60) million | $186 million |
| Net income (loss) | $(63) million | $139 million |
| Diluted earnings per share | $(0.93) | $2.03 |
| Operating cash flow | $163 million | $2,366 million |
- Premium growth was approximately 8.3%, primarily reflecting higher new-business production and growth in existing treaties.
- The net loss reflected COVID-19-related claims, unfavorable investment-related results and higher expenses. The company estimated approximately $315 million of pre-tax COVID-19 life and health claims, including incurred-but-not-reported claims.
- Cash and cash equivalents were $2.7 billion at March 31, 2022, compared with $2.9 billion at December 31, 2021. Total cash and invested assets were $78.6 billion.
- Fixed-maturity securities available for sale totaled $57.9 billion at fair value. Approximately 93.8% of the portfolio was investment grade.
- Gross unrealized gains on fixed-maturity securities declined to $2.2 billion from $5.3 billion at year-end 2021, while gross unrealized losses increased to $2.1 billion from $349 million.
- Long-term debt was $3.7 billion, with an average interest rate of 4.42%. The company was in compliance with its debt covenants.
- RGA had no cash borrowings under its $850 million revolving credit facility and had approximately $829 million of availability. It also had $742 million available through collateralized FHLB borrowings.
- Total equity declined to $9.3 billion from $13.0 billion at December 31, 2021, primarily because of $3.7 billion of after-tax unrealized investment losses recognized in other comprehensive income.
Material Changes Versus the Prior Comparable Period
- Total revenues decreased $189 million, while total expenses increased $57 million, producing a $202 million decline in net income.
- Investment-related results decreased $428 million year over year. Q1 2022 included $25 million of net realized losses from portfolio repositioning versus $154 million of net realized gains in Q1 2021. Derivative fair-value changes also reduced results.
- COVID-19 claims were partly offset by improved non-COVID mortality experience in the U.S. and Latin America traditional business.
- U.S. and Latin America pre-tax loss improved to $122 million from $255 million. EMEA improved to $79 million of pre-tax income from a $8 million loss, while Asia Pacific declined to a $5 million loss from $69 million of income, primarily due to unfavorable derivative fair-value movements.
- Canada pre-tax income declined to $19 million from $30 million, primarily because of unfavorable individual mortality experience and lower investment income.
- Net cash provided by operations declined substantially, from $2.4 billion to $163 million. Financing cash flow was positive $1.9 billion, largely due to $2.4 billion of net deposits to investment-type contracts and issuance of $90 million of subsidiary preferred interests.
- RGA repurchased 219,116 shares for approximately $25 million and paid $49 million of dividends. The board authorized a new $400 million repurchase program in February 2022.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide formal earnings guidance. Management stated that liquidity and capital resources are expected to be sufficient for at least the next 12 months under scenarios including higher COVID-19 claims, market events and potential early treaty recaptures.
- Management expects COVID-19 claim costs to remain uncertain, depending on new variants, vaccination effectiveness, geography and mortality trends. It estimated that each additional 10,000 population deaths could generate approximately $10 million to $20 million of excess claims in the U.S., $4 million to $8 million in the UK and $10 million to $20 million in Canada.
- Key risks include mortality and morbidity volatility, reserve adequacy, interest-rate and credit-spread changes, equity and foreign-exchange movements, derivative valuation, liquidity and collateral requirements, counterparty and retrocessionaire performance, regulatory capital restrictions, rating downgrades and changes in insurance accounting standards.
- The company expects to adopt the long-duration insurance accounting standard on January 1, 2023. Management anticipates potentially material transition effects on retained earnings and accumulated other comprehensive income, but the filing does not provide a clear quantified estimate.
- RGA reported no material litigation and no material changes to previously disclosed risk factors.
- Three mortgage loans were restructured to interest-only payments because of lower occupancy levels; loans meeting troubled-debt-restructuring criteria totaled $77 million before allowances.
- Statutory reserve-support commitments had maximum potential obligations totaling approximately $27.0 billion across 2034 through 2046, although management considered the likelihood of funding remote.
Most Important Facts to Verify
- Whether COVID-19 mortality claims decline as projected and whether additional incurred-but-not-reported claims require reserve increases.
- The sustainability of premium growth and the effect of new business, recaptures, lapses and mortality on reinsurance in force.
- Investment portfolio credit quality, unrealized losses, realized-loss activity and exposure to widening spreads or further interest-rate changes.
- The volatility and cash-flow impact of embedded and freestanding derivatives, particularly in asset-intensive and Asia Pacific financial-solutions businesses.
- Liquidity, collateral requirements, subsidiary dividend capacity and covenant compliance if markets deteriorate or ratings decline.
- The quantified balance-sheet and earnings effects of the January 1, 2023 long-duration insurance accounting adoption.