UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003MARCH 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11848
REINSURANCE GROUP OF AMERICA, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-1627032
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1370 TIMBERLAKE MANOR PARKWAY
CHESTERFIELD, MISSOURI 63017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)OFFICES)
(636) 736-7439
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d)15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO
[ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES [X] NO [ ]____
COMMON STOCK OUTSTANDING ($.01 PAR VALUE) AS OF OCTOBER 31, 2003: 49,988,385
SHARES.APRIL 30, 2004: 62,248,142
SHARES
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I - FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 2003March 31, 2004 and December 31, 20022003 3
Condensed Consolidated Statements of Income (Unaudited)
Three and nine months ended September 30,March 31, 2004 and 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
NineThree months ended September 30,March 31, 2004 and 2003 and 2002 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6(Unaudited) 6-10
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 1110-24
3 Quantitative and Qualitative Disclosures About Market Risk 2824
4 Controls and Procedures 2824
PART II - OTHER INFORMATION
1 Legal Proceedings 2925
6 Exhibits and Reports on Form 8-K 2925
Signatures 3126
Index to Exhibits 3227
2
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,March 31, December 31,
2004 2003
2002
------------------------- ------------
(Dollars in thousands)
ASSETS
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $3,606,738$4,484,404 and
$3,332,717$4,298,597 at September 30, 2003March 31, 2004 and December 31, 2002,2003, respectively) $ 3,893,2014,854,473 $ 3,502,7034,575,735
Mortgage loans on real estate 434,626 227,492504,097 479,312
Policy loans 850,301 841,120903,515 902,857
Funds withheld at interest 2,431,611 1,975,0712,862,082 2,717,278
Short-term investments 45,873 4,26921,352 28,917
Other invested assets 136,096 99,540206,348 179,320
------------ ------------
Total investments 7,791,708 6,650,1959,351,867 8,883,419
Cash and cash equivalents 133,298 88,101255,851 84,586
Accrued investment income 78,691 35,51463,272 47,961
Premiums receivable 320,362 253,892445,185 412,413
Reinsurance ceded receivables 388,949 452,220397,269 463,557
Deferred policy acquisition costs 1,361,075 1,084,9361,844,639 1,757,096
Other reinsurance balances 375,037 288,833275,310 387,108
Other assets 76,414 38,90671,669 77,234
------------ ------------
Total assets $ 10,525,53412,705,062 $ 8,892,59712,113,374
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits $ 2,854,5173,570,768 $ 2,430,0423,550,156
Interest sensitive contract liabilities 4,004,531 3,413,4624,321,488 4,170,591
Other policy claims and benefits 889,210 760,1661,209,619 1,091,038
Other reinsurance balances 247,452 233,286282,239 267,706
Deferred income taxes 424,515 291,980486,501 438,973
Other liabilities 109,189 55,235211,098 90,749
Long-term debt 394,163 327,787404,115 398,146
Company-obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely junior subordinated debentures of the Company 158,262 158,176158,322 158,292
------------ ------------
Total liabilities 9,081,839 7,670,13410,644,150 10,165,651
Commitments and contingent liabilities -- --- -
Stockholders' Equity:
Preferred stock (par value $.01 per share; 10,000,000 shares authorized; no
shares issued or outstanding) -- --- -
Common stock (par value $.01 per share; 75,000,000 shares authorized,
51,053,27363,128,273 shares issued at September 30, 2003March 31, 2004 and December 31, 2002, respectively) 511 5112003) 631 631
Warrants 66,915 66,915
Additional paid-in-capital 613,916 613,0421,043,256 1,042,444
Retained earnings 588,413 480,301699,508 641,502
Accumulated other comprehensive income:
Accumulated currency translation adjustment, net of income taxes 33,379 71548,112 53,601
Unrealized appreciation of securities, net of income taxes 173,297 102,768228,123 170,658
------------ ------------
Total stockholders' equity before treasury stock 1,476,431 1,264,2522,086,545 1,975,751
Less treasury shares held of 1,141,138883,067 and 1,596,629967,927 at cost at
September 30, 2003March 31, 2004 and December 31, 2002,2003, respectively (32,736) (41,789)(25,633) (28,028)
------------ ------------
Total stockholders' equity 1,443,695 1,222,4632,060,912 1,947,723
------------ ------------
Total liabilities and stockholders' equity $ 10,525,53412,705,062 $ 8,892,59712,113,374
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.statements
(unaudited).
3
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------March 31,
---------------------------------------------
2004 2003
2002 2003 2002
----------- ----------- ----------- ----------------------------- ------------------
(Dollars in thousands, except per share data)
REVENUES:
Net premiums $ 572,970813,874 $ 455,750 $ 1,700,746 $ 1,390,113545,215
Investment income, net of related expenses 122,153 82,499 345,234 260,779133,560 107,145
Realized investment gains (losses), net 6,560 1,066 776 (10,951)18,416 (9,828)
Change in value of embedded derivatives (net of amounts
allocable to deferred acquisition costs of $4,200 in 2004) (2,678) -
Other revenues 10,819 10,839 33,670 27,734
----------- ----------- ----------- -----------11,850 11,017
------------------ ------------------
Total revenues 712,502 550,154 2,080,426 1,667,675975,022 653,549
BENEFITS AND EXPENSES:
Claims and other policy benefits 457,844 342,301 1,334,081 1,096,797647,054 423,605
Interest credited 46,251 22,156 130,914 79,77747,018 40,796
Policy acquisition costs and other insurance expenses
111,334 96,303 330,903 252,606(excluding $4,200 allocated to embedded derivatives in 2004) 143,068 104,581
Other operating expenses 24,683 26,358 77,275 67,73433,529 25,755
Interest expense 9,383 9,006 27,384 26,475
----------- ----------- ----------- -----------9,538 8,959
------------------ ------------------
Total benefits and expenses 649,495 496,124 1,900,557 1,523,389880,207 603,696
Income from continuing operations before
income taxes 63,007 54,030 179,869 144,28694,815 49,853
Provision for income taxes 20,783 19,307 60,899 51,603
----------- ----------- ----------- -----------31,821 16,693
------------------ ------------------
Income from continuing operations 42,224 34,723 118,970 92,68362,994 33,160
Discontinued operations:
Loss from discontinued accident and health
operations, net of income taxes (473) (1,135) (1,918) (3,264)
----------- ----------- ----------- -----------(894) (418)
------------------ ------------------
Income before cumulative effect of change in
accounting principle 62,100 32,742
Cumulative effect of change in accounting principle,
net of income taxes (361) -
------------------ ------------------
Net income $ 41,75161,739 $ 33,588 $ 117,052 89,419
=========== =========== =========== ===========
Earnings per share32,742
================== ==================
BASIC EARNINGS PER SHARE:
Income from continuing operations:
Basic earnings per shareoperations $ 0.851.01 $ 0.700.67
Discontinued operations (0.01) (0.01)
Cumulative effect of change in accounting principal (0.01) -
------------------ ------------------
Net income $ 2.390.99 $ 1.88
Diluted earnings per share0.66
================== ==================
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 0.841.00 $ 0.700.67
Discontinued operations (0.01) (0.01)
Cumulative effect of change in accounting principal (0.01) -
------------------ ------------------
Net income $ 2.380.98 $ 1.87
Earnings per share from net income:
Basic earnings per share $ 0.84 $ 0.68 $ 2.36 $ 1.81
Diluted earnings per share $ 0.83 $ 0.68 $ 2.34 $ 1.80
Dividends declared per share0.66
================== ==================
DIVIDENDS DECLARED PER SHARE $ 0.06 $ 0.06
$ 0.18 $ 0.18================== ==================
See accompanying notes to unaudited condensed consolidated financial statements.statements
(unaudited).
4
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(UNAUDITED)
NineThree months ended
September 30,
--------------------------March 31,
----------------------------
2004 2003
2002
----------- ----------------------- ------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 117,05261,739 $ 89,41932,742
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in:
Accrued investment income (42,498) (44,788)(15,266) (20,078)
Premiums receivable (83,332) (34,372)(30,878) (61,001)
Deferred policy acquisition costs (244,916) (128,378)(81,010) (71,237)
Reinsurance ceded balances 63,271 (14,454)66,288 29,237
Future policy benefits, other policy claims and benefits, and
other reinsurance balances 342,263 325,414263,242 175,377
Deferred income taxes 61,932 74,21120,298 11,756
Other assets and other liabilities, 15,797 (60,598)net 125,769 37,487
Amortization of net investment discounts and other (31,302) (11,421)(8,760) (9,284)
Realized investment (gains) losses, net (776) 10,951(18,416) 9,828
Other, net 654 10,360
----------- -----------(7,193) (3,755)
------------ ------------
Net cash provided by operating activities 198,145 216,344375,813 131,072
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturitiesof fixed maturity securities-available for sale 373,726 573,635
Maturities of fixed maturity securities - available for sale 1,315,599 1,627,7688,152 4,910
Purchases of fixed maturity securities - available for sale (1,426,275) (2,047,969)(555,250) (708,315)
Sales of mortgage loans 13,927 -
Cash invested in mortgage loans of real estate (41,276) (39,700)
Cash invested in policy loans and mortgage loans on real estate (224,797) (52,198)(658) (3)
Cash invested in funds withheld at interest (42,671) (38,276)(29,165) (23,786)
Principal payments on policy loans and mortgage loans on real estate 8,891 12,3844,367 2,651
Change in short-term investments and other invested assets (71,898) 114,109
----------- -----------(16,182) (13,992)
------------ ------------
Net cash used in investing activities (441,151) (384,182)(242,359) (204,600)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (8,940) (8,892)(3,733) (2,967)
Borrowings under credit agreements 63,448 --
Purchase of treasury stock -- (6,594)4,600 16,331
Exercise of stock options 9,054 6623,207 2,087
Excess deposits on universal life and other
investment type policies and contracts 221,245 88,045
----------- -----------32,905 90,231
------------ ------------
Net cash provided by financing activities 284,807 73,22136,979 105,682
Effect of exchange rate changes 3,396 (254)
----------- -----------832 917
------------ ------------
Change in cash and cash equivalents 45,197 (94,871)171,265 33,071
Cash and cash equivalents, beginning of period 84,586 88,101
226,670
----------- ----------------------- ------------
Cash and cash equivalents, end of period $ 133,298255,851 $ 131,799
=========== ===========121,172
============ ============
Supplementary disclosure of cash flow information:
Amount of interest paid $ 21,6347,698 $ 20,8757,134
Amount of income taxes paid $ 5,93818,008 $ 11,3011,420
See accompanying notes to unaudited condensed consolidated statements.financial statements
(unaudited).
5
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Reinsurance Group of America, Incorporated ("RGA") and subsidiaries
(collectively, the "Company") have been prepared in conformity with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for the
nine-monththree-month period ended September 30, 2003March 31, 2004 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2003.2004. These
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Current2003 Annual Report on Form 8-K10-K ("2003 Annual Report")
filed with the Securities and Exchange Commission on August 25, 2003 ("Current Report").March 12, 2004.
The accompanying unaudited condensed consolidated financial statements include
the accounts of Reinsurance Group of America, Incorporated and its subsidiaries.
All material intercompany accounts and transactions have been eliminated. The
Company has reclassified the presentation of certain prior period information to
conform to the 20032004 presentation.
Accounting Changes. EffectivePrior to January 1, 2003, the Company adoptedapplied Accounting Principles Board
("APB") Opinion No. 25 in accounting for its stock plans and, accordingly, no
compensation cost was recognized for its stock options in the financial
statements. Had the Company determined compensation cost based on the fair value
recognition provisions ofat the grant date for its stock options under Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," and as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and
Disclosure," prospectively to all awards granted, modified or settled on or
after January 1, 2003. The effects onthe Company's net income and earnings per share
from net
income ifwould have been reduced to the fair value based method had been applied to all awards since the
effective datepro forma amounts indicated below. The effects of
applying SFAS No. 123 may not be representative of the effects on reported net
income for the periods presented below were (in
thousands, except per share amounts):future years.
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------MARCH 31,
2004 2003
2002 2003 2002
---------- ---------- ----------- ---------------------- ------------
Net income as reported $ 41,75161,739 $ 33,588 $ 117,052 $ 89,41932,742
Add compensation expense included in net income, net of
income taxes 272 -- 815 --534 418
Deduct total fair value of compensation expense for all
awards, net of income taxes (870) (741) (2,765) (2,254)
---------- ---------- ----------- ----------1,156 907
------------ ------------
Pro forma net income $ 41,15361,117 $ 32,847 $ 115,102 $ 87,16532,253
Net income per share:
As reported - basic $ 0.840.99 $ 0.68 $ 2.36 $ 1.810.66
Pro forma - basic $ 0.830.98 $ 0.67 $ 2.32 $ 1.770.65
As reported - diluted $ 0.830.98 $ 0.68 $ 2.34 $ 1.800.66
Pro forma - diluted $ 0.820.97 $ 0.66 $ 2.30 $ 1.75
========== ========== =========== ==========0.65
============ ============
6
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share on income from continuing operations for the three- and nine-months ended
September 30, 2003 and 2002 (in thousands except per share
information):
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------MARCH 31, MARCH 31,
2004 2003
2002 2003 2002
-------- -------- -------- -------------------- ------------
Earnings:
Income from continuing operations (numerator for basic
and diluted calculations) $ 42,22462,994 $ 34,723 $118,970 $ 92,68333,160
Shares:
Weighted average outstanding shares (denominator for
basic calculation) 49,793 49,363 49,684 49,37162,210 49,551
Equivalent shares from outstanding stock options
474 276 259 312
-------- -------- -------- --------(denominator for diluted calculation) 498 180
------------ ------------
Denominator for diluted calculation 50,267 49,639 49,943 49,68362,708 49,731
Earnings per share:
Basic $ 0.851.01 $ 0.70 $ 2.39 $ 1.880.67
Diluted $ 0.841.00 $ 0.70 $ 2.38 $ 1.87
======== ======== ======== ========0.67
============ ============
The calculation of equivalent shares from outstanding stock options does not
include the impact of options having a strike price that exceeds the average
stock price for the earnings period, as the result would be antidilutive. The
calculation of equivalent shares also excludes the impact of outstanding
performance contingent shares as the conditions necessary for their issuance
have not been satisfied as of the end of the reporting period. For the
three monthsthree-month period ended September 30, 2003, substantiallyMarch 31, 2004, all outstanding stock options were
included in the calculation of common equivalent shares.shares, while approximately 0.1
million performance contingent shares were excluded from the calculation. For
the nine monthsthree-month period ended September 30,March 31, 2003, approximately 0.82.1 million inof
antidilutive outstanding stock options were not included in the calculation of
common equivalent shares. For the three and nine month periods ended September 30, 2002, approximately 1.4
million and 0.9 million, respectively, in outstanding stock options were not
included in the calculation of common equivalent shares. These options were
outstanding at the end of their respective periods. Diluted earnings per share
for all periods exclude the antidilutive
effect of 5.6 million shares that would be issued upon exercise of outstanding
warrants to purchase Company common stock, as the Company could repurchase more
shares than it could issue with the exercise proceeds
than it issues.proceeds. The warrants become
dilutive once the Company's average stock price during a reporting period
exceeds $39.98 per share.
3. COMPREHENSIVE INCOME
The following schedule reflects the change in accumulated other comprehensive
income for the three and nine-monththree-month periods ended September 30,March 31, 2004 and 2003 and 2002 (dollars in
thousands):
THREE MONTHS ENDED
NINE MONTHS ENDED
---------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,MARCH 31, MARCH 31,
2004 2003
2002 2003 2002
------------- ------------- ------------- ------------------------- ------------
Net income $ 41,75161,739 $ 33,588 $117,052 $ 89,41932,742
Accumulated other comprehensive
income (expense), net of income taxes:tax:
Unrealized gains (losses) on securities (35,410) 83,380 70,529 90,323, net of
reclassification adjustment for gains
(losses) included in net income. 57,465 (15,743)
Foreign currency items (3,210) (20,061) 32,664 9,838
-------- -------- -------- --------(5,489) 9,701
------------ ------------
Comprehensive income $ 3,131113,715 $ 96,907 $220,245 $189,580
======== ======== ======== ========26,700
============ ============
7
4. SEGMENT INFORMATION
Prior to 2003, the Company reported the results of its operations in five main
operational segments segregated primarily by geographic region: U.S., Canada,
Latin America, Asia Pacific, and Europe & South Africa. The Latin America, Asia
Pacific, and Europe & South Africa segments were presented historically as one
reportable segment, Other International. As a result of the Company's declining
presence in Argentina and changes in management responsibilities for part of the
Latin America region, beginning with the first quarter of 2003, the Other
International reportable segment no longer includes Latin America operations.
Latin America results relating to the Argentine privatized pension business as
well as direct insurance operations in Argentina are now reported in the
Corporate and Other segment. The results for all other Latin America business,
primarily traditional reinsurance business in Mexico, are now reported as part
of U.S. operations in the Traditional sub-segment. The Asia Pacific and Europe &
South Africa operational segments are presented herein as one reportable
segment, Other International. Prior period segment information has been
reclassified to conform to this new presentation.
The accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies in Note 2 of the Current2003 Annual Report.
The Company measures segment performance primarily based on
7
profit or loss from operations before income taxes. There are no intersegment
reinsurance transactions and the Company does not have any material long-lived
assets. Investment income is allocated to the segments based upon average assets
and related capital levels deemed appropriate to support the segment business
volumes.
Information related to total revenues and income (loss) from continuing
operations before income taxes for each reportable segment for the three and
nine months ended September 30, 2003 and 2002 are summarized below
(in(dollars in thousands).
INCOME (LOSS) FROM CONTINUING
TOTAL REVENUES OPERATIONS BEFORE INCOME TAXES
---------------------------- ------------------------------
THREE MONTHS ENDED NINEMARCH 31, THREE MONTHS ENDED ---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,MARCH 31,
2004 2003 20022004 2003
2002
------------- ------------- ------------- --------------------- -------- ------- -------
REVENUES
U.S. $ 468,814 $ 392,021 $ 1,396,126 $ 1,209,293$646,364 $450,806 $70,247 $42,638
Canada 84,034 60,928 229,233 184,722
Other International 154,962 98,003 438,851 259,69485,475 68,024 15,920 10,627
Europe & South Africa 122,344 85,366 6,260 2,409
Asia Pacific 108,256 44,950 6,797 1,368
Corporate and Other 4,692 (798) 16,216 13,966
----------- ----------- ----------- -----------12,583 4,403 (4,409) (7,189)
-------- -------- ------- -------
Total from continuing operations $ 712,502 $ 550,154 $ 2,080,426 $ 1,667,675
=========== =========== =========== ===========$975,022 $653,549 $94,815 $49,853
======== ======== ======= =======
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
U.S. $ 45,303 $ 55,307 $ 143,702 $ 132,256
Canada 19,529 8,678 43,585 27,428
Other International 9,627 4,054 21,833 8,728
Corporate and Other (11,452) (14,009) (29,251) (24,126)
----------- ----------- ----------- -----------
Total from continuing operations $ 63,007 $ 54,030 $ 179,869 $ 144,286
=========== =========== =========== ===========
Other InternationalEurope & South Africa and Asia Pacific assets increased approximately 52.6%17.1% and
16.2%, respectively, from the amounts disclosed in Note 17 of the Current2003 Annual
Report, primarily due to the continued growth in the Europe & South Africa and Asia Pacificthese segments. Latin America
assets have been reclassified between U.S. and Corporate and Other segments for
comparable periods.
5. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is currently a party to various litigation and arbitrations that
involve medical reinsurance arrangements, personal accident business, and
aviation bodily injury carve-out business. As of September 30, 2003,March 31, 2004, the ceding
companies involved in these disputes have raised claims, or established reserves
that may result in claims, that are $50.9$96.1 million in excess of the amounts held
in reserve by the Company. The Company generally has little information
regarding any reserves established by the ceding companies, and it is possible
that any such reserves could be increased in the future. The Company believes it
has substantial defenses upon which to contest these claims, including but not
limited to misrepresentation and breach of contract by direct and indirect
ceding companies. In addition, the Company is in the process of auditing ceding
companies whichthat have indicated that they anticipate asserting claims in the
future against the Company that are $7.8$8.4 million in excess of the amounts held
in reserve by the Company. Depending upon the audit findings in these cases,
they could result in litigation or 8
arbitrations in the future. See Note 21,
"Discontinued Operations," ofin the CurrentCompany's 2003 Annual Report for more
information. FromAdditionally, from time to time, the Company is subject to
litigation and arbitration related to its life reinsurance business and to
employment-related matters in the normal course of its business. While it is not
feasible to predict or determine the ultimate outcome of the pending litigation
or arbitrations or provide reasonable ranges of potential losses, it is the
opinion of management, after consultation with counsel, that their outcomes,
after consideration of the provisions made in the Company's condensed
consolidated
financial statements, would not have a material adverse effect on its
consolidated financial position, but could haveposition.
As discussed in the Company's Form 10-K for the period ending December 31, 2003,
certain regulations were pending relating to permanently disabled participants
of the privatized pension plans administered by Administradoras de Fondos de
Jubilaciones y Pensiones ("AFJPs"). Recently, the Argentine government enacted
those regulations. The new regulations require permanently disabled AFJP plan
participants to elect a positiveprogrammed withdrawal or negative
effectan annuity with respect to
deferred disability claims at a time when the AFJP fund unit values are
significantly inflated. The new regulations are expected to accelerate permanent
disability payments from reinsurers; particularly with respect to plan
participants that elect programmed withdrawal. The Company cannot predict the
percentage of plan participants that will elect programmed withdrawal as opposed
to an annuity. Also, as discussed in the Company's Form 10-K, the Company had
placed the Argentine Government on net income.notice of its intent to file an arbitration
with respect to alleged violations of the Treaty on Encouragement and Reciprocal
Protection of Investments, between the Argentine Republic and the United States
of America, dated November 14, 1991 (the "Treaty"). On March 24, 2004, RGA
Reinsurance filed a request for arbitration of its dispute relating to these
alleged violations pursuant to the Washington Convention of 1965 on the
Settlement of Investment Disputes under the auspices of the International Centre
for Settlement of Investment Disputes of the World Bank.
8
The Company has obtained letters of credit in favor of various affiliated and
unaffiliated insurance companies from which the Company assumes business. This
allows the ceding company to take statutory reserve credits. The letters of
credit issued by banks represent a guarantee of performance under the
reinsurance agreements. At September 30, 2003,March 31, 2004, there were approximately $41.7$39.7
million of outstanding letters of credit in favor of third-party entities.
Additionally, the Company utilizes letters of credit to secure reserve credits
when it retrocedes business to its offshore subsidiaries, including RGA Americas
Reinsurance Company, Ltd. and RGA Reinsurance Company (Barbados) Ltd. As of
September 30, 2003, $390.1March 31, 2004, $292.3 million in letters of credit from various banks were
outstanding between the various subsidiaries of the Company. Fees associated
with letters of credit are not fixed for periods in excess of one year and are
based on the Company's ratings and the general availability of these instruments
in the marketplace.
The letters of credit are issued for a term of one year and
renew automatically unless the issuing bank provides the Company with at least
thirty days notice of their intent not to renew.
RGA has issued guarantees on behalf of its subsidiaries' performance for the payment of
amounts due under certain credit facilities and reinsurance treaties, and
an office lease obligation, whereby if
a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries
will make a payment to fulfill the obligation. In limited circumstances, treatyTreaty guarantees are granted to
ceding companies in order to provide them additional security, particularly in
cases where RGA's subsidiary is relatively new, unrated, or not of a significant
size, relative to the ceding company. Liabilities supported by the treaty
guarantees, before consideration for any legally offsetting amounts due from the
guaranteed party, totaled $113.3$198.4 million as of September 30, 2003March 31, 2004 and are reflected
on the Company's condensed consolidated balance sheet inas future policy benefits.
Guarantees related to credit facilities provide additional security to third
party banks should a subsidiary fail to make principal and/or interest payments
when due. As of September 30, 2003,March 31, 2004, RGA's exposure related to credit facility
guarantees was $44.6$54.5 million, and is reflected on the condensed consolidated
balance sheet in long-term debt. RGA's maximum potential guarantee under the
credit facilities is $48.7 million. RGA has issued a guarantee on behalf of a
subsidiary in the event the subsidiary fails to make payment under its office
lease obligation. As of September 30, 2003, the maximum potential exposure wasamount under current
facility terms.
6. EMPLOYEE BENEFIT PLANS
The components of net periodic benefit costs were as follows:
March 31,
---------------------------------------
(in thousands) Pension Benefits Other Benefits
------------------ ------------------
2004 2003 2004 2003
------- -------- -------- -------
DETERMINATION OF NET PERIODIC BENEFIT COST:
Service cost $ 442 $ 368 $ 94 $ 78
Interest cost 316 263 91 76
Expected rate of return on plan assets (192) (161) -- --
Amortization of prior service cost 9 8 -- --
Amortization of prior actuarial loss 42 35 18 15
------- -------- -------- -------
Net periodic benefit cost $ 617 $ 513 $ 203 $ 169
======= ======== ======== =======
The Company expects to contribute $2.9 million in pension benefits and $0.1
million in other benefits during 2004. Employer contributions for the first
quarter of 2004 are estimated to be approximately $2.8 million.
6.$9,000. Revised estimated
employer contributions to be paid to fund the plan during 2004 include the
contributions already made in 2004 (includes discretionary contributions as well
as those required by funding regulations or laws).
7. NEW ACCOUNTING STANDARDS
In July 2003, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts." SOP
03-1 provides guidance on separate account presentation and valuation, the
accounting for sales inducements and the classification and valuation of
long-duration contract liabilities. SOP 03-1 is effective for fiscal years
beginning after December 15, 2003. The Company is inadopted the process of quantifying
the impactprovisions of SOP
03-1 on its consolidated financial statements.January 1, 2004, recording a charge of $361 thousand, net of income
taxes.
In MayJanuary 2003, the Financial Accounting Standards Board ("FASB") issued
Statement
of Financial Accounting Standards ("SFAS") No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Effective July 1, 2003, the Company
adopted the provisions of SFAS No. 150, which did not materially affect the
Company's financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 requires that
contracts with comparable characteristics be accounted for similarly. In
particular, SFAS No. 149 clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative and when a
derivative contains a financing component, amends the definition of an
underlying to conform it to language used in FASB Interpretation No. 45,
"Guarantor's Accounting and
9
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", and amends certain other existing pronouncements. SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. In addition,
provisions of SFAS No. 149 should be applied prospectively. Effective July 1,
2003, the Company adopted the provisions of SFAS No. 149 with no impact to the
consolidated financial statements.
In April 2003, the FASB cleared SFAS No. 133 Implementation Issue No. B36,
"Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments
That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially
Related to the Creditworthiness of the Obligor under Those Instruments" ("Issue
B36"). Issue B36 concluded that (i) a company's funds withheld payable and/or
receivable under certain reinsurance arrangements and (ii) a debt instrument
that incorporates credit risk exposures that are unrelated or only partially
related to the creditworthiness of the obligor include an embedded derivative
feature that is not clearly and closely related to the host contract. Therefore,
the embedded derivative feature must be measured at fair value on the balance
sheet and changes in fair value reported in income. Issue B36 is effective
October 1, 2003.
Substantially all of the Company's funds withheld receivable balance is
associated with its reinsurance of annuity contracts. The funds withheld
receivable balance totaled $2.4 billion at September 30, 2003, of which $1.8
billion are subject to the provisions of Issue B36. Management believes the
embedded derivative feature in each of these reinsurance treaties is similar to
a total return swap on the assets held by the ceding companies. The Company has
developed cash flow models as the basis for estimating the value of the total
return swap. The cash flow models are based on the Company's expectations of the
future cash flows under the reinsurance treaties that in turn are driven by the
underlying annuity contracts. The fair value of the total return swap is
affected by changes, both actual and expected, in the cash flows of the
underlying annuity contracts, changes in credit risk associated with the assets
held by the ceding company and changes in interest rates. The change in fair
value, which is a non-cash item, also affects the amortization of deferred
acquisition costs since the Company is required to include it in its expectation
of gross profits. Management estimates the initial adoption of Issue B36 will
result in a net gain, after tax and after related amortization of deferred
acquisition costs, of approximately $1.0 million. This estimate is subject to
change as management continues to validate its models and refine its
assumptions. Additionally, industry standards and practices continue to evolve
related to valuing these types of embedded derivative features.
In addition to its annuity contracts, the Company has entered into various
financial reinsurance treaties on a funds withheld and modified coinsurance
basis. These treaties do not transfer significant insurance risk and are
recorded on a deposit method of accounting with the Company earning a net fee.
As a result of the experience refund provisions contained in these treaties, the
value of the embedded derivatives in these contracts is currently considered
immaterial. The Company monitors the performance of these treaties on a
quarterly basis. Significant adverse performance or losses on these treaties may
result in a loss associated with the embedded derivative.
Effective January 1, 2003, the Company adopted the provisions of SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities,Entities" ("FIN 46"),
an interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," andwhich requires the consolidation by a business enterprise
of variable interest entities if the business enterprise is the primary
beneficiary. FIN 46 was effective January 31, 2003, for the Company with respect
to interests in variable interest entities obtained after that date. With
respect to interests in variable interest entities existing prior to February 1,
2003, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting46 (revised December 2003), which
9
extended the effective date of FIN 46 to the period ending March 31, 2004. The
Company adopted the provisions of FIN 46 as of March 31, 2004 and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." The
adoption of these provisions didis not
materially affect the Company's financial
position or results of operations.
Inrequired to consolidate any material interests in variable interest entities.
8. SIGNIFICANT TRANSACTION
During December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123." Effective January 1, 2003, the Company prospectively adopted the fair
value-based employee stock-based compensation expense recognition provisions of
SFAS No. 123, as amended by SFAS No. 148. The Company formerly applied the
intrinsic value-based expense provisions set forth in APB Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB 25"). For the three and nine
month periods ended September 30, 2003, the Company recorded pre-tax
compensation expense of approximately $0.4 million and $1.3 million,
respectively, associatedcompleted a large coinsurance agreement with stock option grants issued during January 2003.
7. ACQUISITION OF BUSINESS
On September 22, 2003, RGA Reinsurance Company ("RGA Re"), a wholly-owned
subsidiary of the Company, entered into a definitive agreement whereby it will
acquire through coinsurance the traditional U.S. life reinsurance business of
Allianz Life Insurance Company of North America ("Allianz Life"). The
transaction is subject to filing underUnder this
agreement, RGA Reinsurance assumed the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, certain regulatory approvals, and other customary
closing conditions and is expected to close during the fourth quarter of 2003.
At closing, RGA Re will
10
pay Allianz Life a ceding commission of $310 million. Allianz Life will transfer
to RGA Re assets equal to the statutory reservestraditional life reinsurance business of
Allianz Life, associated with
those liabilitiesincluding yearly renewable term reinsurance and coinsurance of
term policies. The business assumed by RGA Re as of June 30, 2003 afterdoes not include any estimated
premium adjustment,accident and including allhealth
risk, annuities or related guaranteed minimum death benefits or guaranteed
minimum income benefits. This transaction adds additional scale to the Company's
U.S. traditional business, but does not significantly add to its client base
since most of the cash income (net of expenses) under
the assumed life reinsurance treaties from July 1, 2003 to the date of closing,
net of purchase price, subject to certain post-closing adjustments. Upon such
closing, theunderlying ceding companies are already clients. The Company expects to receive cash from Allianz Life in excess of the
$310 million ceding commission that the Company will pay to Allianz Life. The
excess will not be determined until the transaction is closed. RGA Re
has agreed to use commercially reasonable efforts to novate the business after the
transaction is closed. The Company expects the transactionunderlying
treaties from Allianz Life to add approximately
$240 billion of life reinsurance in force, and to generate approximately $400 to
$450 million in annual premiums, approximately $5.0 to $8.0 million, after tax,
in net income to the fourth quarter of 2003, and approximately $30 to $40
million, after tax, in net income during 2004.
8. SUBSEQUENT EVENT
Common Stock Offering
RGA expects to complete the sale of 10,500,000 shares of its common stock on
November 13, 2003 at a price per share of $36.65 generating estimated net
proceeds of approximately $371.8 million. RGA has granted the underwriters a
30-day option to purchase an additional 1,575,000 shares of RGA's common stock.
RGA expects to use the net proceeds for general corporate purposes, including
funding its reinsurance operations. Pending such use, RGA expects to invest the
net proceeds in interest-bearing, investment-grade securities, short-term
investments, or similar assets. MetLife, Inc. has indicated that it and its
affiliates are interested in purchasing 3,000,000 shares of common stockReinsurance. Novation results in the
offering having a total purchase priceunderlying client companies reinsuring the business directly to RGA Reinsurance
versus passing through Allianz Life. The profitability of $109,950,000. If MetLife, Inc.
purchases these shares, immediately after this offering, it will beneficially
own approximately 53.4% of RGA's common stock outstanding as of September 30,
2003, assuming the underwriters dobusiness is not
exercise their optiondependent on novation. The transaction was effective retroactive to purchase
additional shares.July 1,
2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Prior to 2003,Our primary business is life reinsurance, which involves reinsuring life
insurance policies that are often in force for the Company reported the results of its operations in five main
operational segments segregated primarily by geographic region: U.S., Canada,
Latin America, Asia Pacific, and Europe & South Africa. The Latin America, Asia
Pacific, and Europe & South Africa segments were presented historically as one
reportable segment, Other International. As a resultremaining lifetime of the
Company's declining
presence in Argentina and changes in management responsibilities for partunderlying individuals insured, with premiums earned typically over a period of
10 to 30 years. Each year, however, a portion of the Latin America region, beginning withbusiness under existing
treaties terminates due to, among other things, lapses or surrenders of
underlying policies, deaths of policyholders, and the firstexercise of recapture
options by ceding companies.
We derive revenues primarily from renewal premiums from existing reinsurance
treaties, new business premiums from existing or new reinsurance treaties,
income earned on invested assets, and fees earned from financial reinsurance
transactions. We believe that industry trends have not materially changed from
those discussed in our 2003 Annual Report. Further, critical accounting policies
are substantially the same as those disclosed in our 2003 Annual Report.
Our profitability primarily depends on the volume and amount of death claims
incurred and our ability to adequately price the risks we assume. While death
claims are reasonably predictable over a period of many years, claims become
less predictable over shorter periods and are subject to significant fluctuation
from quarter to quarter and year to year. Effective July 1, 2003, we increased
the maximum amount of 2003, the Other
International reportable segment no longer includes Latin America operations.
Latin America results relatingcoverage that we retain per life from $4 million to $6
million. This increase does not affect business written prior to July 1, 2003.
Claims in excess of this retention amount are retroceded to retrocessionaires;
however, we remain fully liable to the Argentine privatized pension business as
well as direct insurance operationsceding company, our customer, for the
entire amount of risk we assume. The increase in Argentina are now reportedour retention limit from $4
million to $6 million reduces the amount of premiums we pay to our
retrocessionaires, but increases the maximum impact a single death claim can
have on our results and therefore may result in the
Corporate and Other segment. The results for all other Latin America business,
primarily traditional reinsurance business in Mexico, are now reported as part
ofadditional volatility to our
results.
Our U.S. operations in the Traditional sub-segment. The Asia Pacific and Europe &
South Africa operational segments are presented herein as one reportable
segment, Other International. Prior period segment information has been
reclassified to conform to this new presentation.
The U.S. Operations provide traditional life, asset-intensive, and financial
reinsurance products. The Canada operations provide insurers with reinsurance of
traditional life reinsuranceproducts as well as creditor andreinsurance of critical illness products. The
Asia Pacific operations provide primarily traditional life and critical illness
reinsurance and, to a lesser extent, financial reinsurance. The Europe & South
Africa operations include traditional life reinsurance and critical illness
business from Europe and South Africa, in addition to other markets being
developed by the Company. Thewe are
developing. Corporate and Other segment results include the corporate investment
activity, general corporate expenses, interest expense of RGA, Argentine
privatized pension business and the provision for income tax expense (benefit).
The Company'sOur discontinued accident and health operations are not reflected in the
continuing operations of the Company. The Company measures segment performance
based on income or loss from continuing operations before income taxes.
10
RESULTS OF OPERATIONS
Consolidated income from continuing operations before income taxes increased
$9.0 million for the thirdfirst
quarter and $35.6of 2004 increased $45.0 million, for the nine months ended
September 30, 2003, asor 90.2%, compared to the respective prior-year
periods. Diluted
earnings per shareperiod, primarily due to higher revenue levels and net capital gains on
investment transactions during the first quarter of 2004. This increase was a
result of our large coinsurance agreement with Allianz Life Insurance Company of
North America ("Allianz Life") completed in December 2003, as well as continued
growth in life reinsurance premiums in all of our operating segments.
Consolidated premiums from continuing operations were $0.84 and $2.38 forincreased $268.7 million, or
49.3%, during the thirdfirst quarter and first nine months of 2003, respectively,2004 compared to $0.70 and $1.87
for2003. The Allianz Life
transaction represented $118.5 million of this increase. We expect the comparable prior-year periods.
11
Allianz
Life transaction to generate approximately $450 million to $500 million of
premiums during 2004.
Consolidated investment income, net of related expenses, increased 48.1% and
32.4%24.7% during
the thirdfirst quarter and first nine months of 2003, respectively,2004, primarily due to a larger invested asset base.
Invested assets as of September 30, 2003March 31, 2004 totaled $7.8$9.4 billion, a 34.3%32.2% increase over
September 30,
2002. TheMarch 31, 2003. While our invested asset base has grown significantly since
March 31, 2003, the average yield earned on investments excluding funds withheld
at
interest was 6.59%decreased from 6.67% during the first quarter of 2003 to 5.83% for the third quartersfirst
quarter of 2004. The decrease in yield is primarily the result of a lower
interest rate environment during 2003 and 2002.the first quarter of 2004. The average
yield will vary from quarter to quarter and year to year depending on a number
of variables, including the prevailing interest rate environment and changes in
the mix of our underlying investments. Investment income is allocated to the
segments based upon average assets and related capital levels deemed appropriate
to support the segment business volumes.
TheEffective tax rates on a consolidated provision for income taxes increased 7.6% and 18.0% for the
third quarter and first nine months of 2003, respectively, primarily a result of
a higher income from continuing operations before income taxes during the
current year. The effective tax rate was 33.0% for the third quarter and 33.9%basis for the first nine months of 2003, compared to 35.7% and 35.8% for the
comparable prior-year periods. The decrease in the effective tax rate was
primarily due to earnings in certain foreign subsidiaries, which resulted in a
release of valuation allowances in those entities, and a reduction in foreign
country tax rates.
On September 22, 2003, RGA Reinsurance Company ("RGA Re"), a wholly-owned
subsidiary of the Company, entered into a definitive agreement whereby it will
acquire through coinsurance the traditional U.S. life reinsurance business of
Allianz Life. The transaction is subject to a filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, certain regulatory approvals, and other
customary closing conditions and is expected to close during the fourth quarter of 2003. At closing, RGA Re will pay Allianz Life a ceding commission of $310
million. Allianz Life will transfer to RGA Re assets equal to the statutory
reserves of Allianz Life associated with those liabilities assumed by RGA Re as
of June 30,2004 and
2003 after any estimated premium adjustment,were 33.6% and including all of
the cash income (net of expenses) under the assumed life reinsurance treaties
from July 1, 2003 to the date of closing, net of purchase price, subject to
certain post-closing adjustments. Upon such closing, the Company expects to
receive cash from Allianz Life in excess of the $310 million ceding commission
that the Company will pay to Allianz Life. The excess will not be determined
until the transaction is closed. RGA Re has agreed to use commercially
reasonable efforts to novate the business after the transaction is closed. The
Company expects the transaction to add approximately $240 billion of life
reinsurance in force, and to generate approximately $400 to $450 million in
annual premiums, approximately $5.0 to $8.0 million, after tax, in net income to
the fourth quarter of 2003, and approximately $30 to $40 million, after tax, in
net income during 2004.33.5%, respectively.
Further discussion and analysis of the results for 2003the first quarter of 2004
compared to 2002the first quarter of 2003 are presented by segment. 12Certain
prior-year amounts have been reclassified to conform to the current-year
presentation. References to income before income taxes exclude the effects of
discontinued operations and the cumulative effect of changes in accounting
principles.
11
RESULTS OF OPERATIONS
U.S. OPERATIONS
U.S. Operations consistsoperations consist of two major sub-segments: Traditional and
Non-Traditional. The Traditional sub-segment primarily specializes in
mortality-risk reinsurance. This category derives revenues primarily from
renewal premiums from existing mortality-risk reinsurance treaties, new business
premiums from existing or new mortality-risk reinsurance treaties, and income
earned on invested assets. The Non-traditional category consists of
Asset-Intensive and Financial Reinsurance.
FOR THE THREE MONTHS ENDED MARCH 31, 2004 (IN THOUSANDS)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 (IN THOUSANDS):
NON-TRADITIONAL
------------------------
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
----------- ----------- ----------- ---------------------- ------------ --------------- --------------
REVENUES:
Net premiums $ 368,171531,211 $ 1,0931,182 $ -- $ 369,264532,393
Investment income, net of related expenses 47,370 44,385 97 91,85254,053 45,467 43 99,563
Realized investment losses,gains, net (1,059) (367)7,558 144 -- (1,426)7,702
Change in value of embedded derivatives (net of
amounts allocable to deferred acquisition
costs of $4,200) -- (2,678) -- (2,678)
Other revenues 489 2,022 6,613 9,124
--------- --------- --------- ---------1,334 1,670 6,380 9,384
------------- ------------ --------------- --------------
Total revenues 414,971 47,133 6,710 468,814594,156 45,785 6,423 646,364
BENEFITS AND EXPENSES:
Claims and other policy benefits 297,654 776430,891 (1,021) -- 298,430429,870
Interest credited 14,919 30,70312,078 34,494 -- 45,62246,572
Policy acquisition costs and other insurance
expenses 56,738 10,861 2,206 69,805(excluding $4,200 allocated to
embedded derivatives) 75,431 7,645 2,294 85,370
Other operating expenses 7,515 891 1,248 9,654
--------- --------- --------- ---------11,724 1,159 1,422 14,305
------------- ------------ --------------- --------------
Total benefits and expenses 376,826 43,231 3,454 423,511530,124 42,277 3,716 576,117
Income from continuing operations before income taxes $ 38,14564,032 $ 3,9023,508 $ 3,2562,707 $ 45,303
========= ========= ========= =========70,247
============= ============ =============== ==============
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002MARCH 31, 2003 (IN THOUSANDS):
NON-TRADITIONAL
------------------------
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
----------- ----------- ----------- ---------
REVENUES:
Net premiums $319,485 $ 803 $ -- $320,288
Investment income, net of related expenses 43,430 17,495 28 60,953
Realized investment gains (losses), net 1,880 (295) -- 1,585
Other revenues 740 2,515 5,940 9,195
-------- -------- -------- --------
Total revenues 365,535 20,518 5,968 392,021
BENEFITS AND EXPENSES:
Claims and other policy benefits 231,890 9,298 -- 241,188
Interest credited 13,422 6,642 -- 20,064
Policy acquisition costs and other insurance
expenses 60,265 1,697 1,679 63,641
Other operating expenses 8,850 358 2,613 11,821
-------- -------- -------- --------
Total benefits and expenses 314,427 17,995 4,292 336,714
Income from continuing operations before
income taxes $ 51,108 $ 2,523 $ 1,676 $ 55,307
======== ======== ======== ========
13
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 (IN THOUSANDS):
NON-TRADITIONAL
---------------------------
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
----------- ----------- ----------- ------------------------ ------------ --------------- --------------
REVENUES:
Net premiums $ 1,115,360368,807 $ 3,1971,098 $ --- $ 1,118,557369,905
Investment income, net of related expenses 135,246 122,923 97 258,26642,701 36,334 - 79,035
Realized investment losses, net (7,017) (2,080) -- (9,097)(5,244) (2,861) - (8,105)
Other revenues 3,186 5,035 20,179 28,400
----------- ----------- ----------- -----------1,813 1,247 6,911 9,971
------------- ------------ --------------- --------------
Total revenues 1,246,775 129,075 20,276 1,396,126408,077 35,818 6,911 450,806
BENEFITS AND EXPENSES:
Claims and other policy benefits 888,905 4,166 -- 893,071293,726 1,619 - 295,345
Interest credited 45,169 84,424 -- 129,59315,319 25,141 - 40,460
Policy acquisition costs and other insurance
expenses 164,257 26,892 7,447 198,59650,805 8,028 2,520 61,353
Other operating expenses 24,454 2,829 3,881 31,164
----------- ----------- ----------- -----------8,455 1,112 1,443 11,010
------------- ------------ --------------- --------------
Total benefits and expenses 1,122,785 118,311 11,328 1,252,424368,305 35,900 3,963 408,168
Income from continuing operations(loss) before income taxes $ 123,99039,772 $ 10,764(82) $ 8,9482,948 $ 143,702
=========== =========== =========== ===========42,638
============= ============ =============== ==============
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (IN THOUSANDS):
NON-TRADITIONAL
---------------------------
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
----------- ----------- ----------- -----------
REVENUES:
Net premiums $ 1,002,741 $ 2,796 $ -- $ 1,005,537
Investment income, net of related expenses 120,039 63,943 155 184,137
Realized investment losses, net (1,151) (4,255) -- (5,406)
Other revenues 1,546 5,684 17,795 25,025
----------- ----------- ----------- ------------
Total revenues 1,123,175 68,168 17,950 1,209,293
BENEFITS AND EXPENSES:
Claims and other policy benefits 785,756 17,014 -- 802,770
Interest credited 41,517 35,453 -- 76,970
Policy acquisition costs and other insurance
expenses 153,760 8,126 5,517 167,403
Other operating expenses 22,145 744 7,005 29,894
----------- ----------- ----------- ------------
Total benefits and expenses 1,003,178 61,337 12,522 1,077,037
Income from continuing operations before
income taxes $ 119,997 $ 6,831 $ 5,428 $ 132,256
=========== =========== =========== ============
Income from continuing operations before income taxes for the U.S. Operations segment totaled $45.3 million and $143.7$70.2 million
for the thirdfirst quarter and first
nine months of 2003, a decrease of 18.1% and2004, an increase of 8.7%64.8% from the comparable
prior-year periods, respectively. The decrease in income from
continuing operations before income taxes for the quarter isperiod, primarily the
result of unfavorable claims experiencedue to higher revenue levels and net capital gains
on investment transactions in the currentfirst quarter and favorable
claim experience in the comparable prior-year quarter. The increase in income
from continuing operations before income taxes for the year is primarily the
result of premium growth compared to the same period last year.
142004.
12
Traditional Reinsurance
The U.S. traditional reinsurance is the oldest and largest sub-segment of the
Company. This sub-segment provides life reinsurance to
domestic clients for a variety of life products through yearly renewable term
agreements, coinsurance, and modified coinsurance arrangements. These
reinsurance arrangements may be either facultative or automatic agreements.
During the thirdfirst quarter and first
nine months of 2003,2004, this sub-segment added $29.7 billion and $95.6$44.2 billion face
amount of new business respectively, compared to $28.6 billion and $102.8$26.6 billion for the same periodsperiod in 2002.2003.
Total assumed inforce,in force, as measured by insurance face amount, as of September 30, 2003 for U.S. Operations was $594.8totaled $922.4
billion, an increase of 13.9%63.7% over the total at September 30, 2002.March 31, 2003. The Allianz Life
transaction contributed 50.7% of the increase for the comparable periods.
Management believes life insurance industry consolidations and the trend towards
reinsuring mortality risks should continue to provide reinsurance opportunities for growth,
although transactions the timing and levelsize of production is uncertain.Allianz Life may or may not occur.
Income from continuing operations before income taxes for U.S. traditional reinsurance decreased 25.4%increased 61.0% in
the thirdfirst quarter of 2004. This increase was driven by growth in net premiums,
including the Allianz transaction, and increased 3.3% for the nine
months ended 2003, respectively. The decrease for the third quarter was due to
slightly unfavorable claims experience compared to favorable claims experience
for the comparable prior-year period. The increase for the year was due to
continued premium growth and generally favorable claims experience,net realized investment gains of $7.6
million, somewhat offset by an increase in net realized investment losseshigher mortality experience during the first quarter
of $5.9 million.2004 compared to the first quarter of 2003.
Net premiums for U.S. traditional reinsurance increased 15.2% and 11.2%44.0% in the thirdfirst
quarter and first nine months of 2003, respectively.2004, 32.1% of which related to the $118.5 million in net premiums
from the Allianz Life transaction. New premiums from facultative and automatic
treaties and renewal premiumpremiums on existing blocks of business allalso contributed to
growth. Additionally, new inforce blocks assumed
contributed $30.3 million of the growth for the year.
Net investment income increased 9.1% and 12.7%26.6% in the thirdfirst quarter and first
nine months of 2003, respectively.2004. The increase
is due to growth in the invested asset base, primarily due to the Allianz Life
transaction, increased cash flows from operating activities on traditional
reinsurance.
Claimsreinsurance, which was partially offset by lower yields, primarily as a result
of a general decline in interest rates.
Loss ratios (claims and other policy benefits as a percentage ofdivided by net premiums (loss ratio)premiums) were
80.8%81.1% and 79.7%79.6% in the thirdfirst quarter of 2004 and first nine months of 2003, respectively, compared to 72.6% and 78.4% for the same periods in 2002.respectively. The
increase in the loss ratio for the period is the result of modestly favorablesomewhat higher
claims experience for the yearfirst quarter in 2004 compared to very favorable claims
experience forin the same period last year.first quarter of 2003. Management believes death claims are
reasonably predictable over a period of many years, but are less predictable
over shorter periods and are subject to significant fluctuation.
Interest credited relates to amounts credited on the Company's cash value
products in this sub-segment, which have a significant mortality component. This
amount fluctuates with the changes in deposit levels, cash surrender values and
investment performance.
As a percentage of net premiums, policy acquisition costs and other insurance
expenses were 15.4% and 14.7%14.2% for the thirdfirst quarter and first nine months of 2003, respectively,2004 compared to 18.9% and 15.3%13.8% for the same
periodsperiod in 2002.2003. These percentages are generally expected to fluctuate due to
variations in the mixture of business being written.
Other operating expenses, as a percentage of net premiums, were 2.0% and 2.2% for the
thirdfirst quarter and first nine months of 2003, respectively,2004, compared to 2.8%
and 2.2%2.3% for the same periodsperiod in 2002.2003. These
percentages are generally expected to fluctuate slightly from period to period,
but should remain fairly constant over the long term.
As described above, the Company entered into a definitive agreement on September
22, 2003 whereby it will acquire the traditional U.S. life reinsurance business
of Allianz Life. This transaction is expected to add approximately $240 billion
of life reinsurance in force to the Company's book of business and to generate
approximately $400 to $450 million in annual premiums. Additionally, the Company
expects this business will generate approximately $5.0 to $8.0 million after
tax, in net income in the fourth quarter of 2003, and approximately $30 million
to $40 million in after-tax net income during 2004. This business will be
reported within the U.S. traditional reinsurance sub-segment. Management expects
it will take approximately 12 months to transition the policy information to
RGA's systems. Allianz Life will provide transition and service support during
that period.
15
RGA intends to initially finance the Allianz Life transaction using several
sources, including funds available under its current bank credit lines, funds
generated by existing operations and its retrocession arrangements. Based upon
its internal capital model, RGA expects to allocate approximately $250 million
of capital to support this block of business on a going forward basis. The mix
of financing sources will depend upon current and future market conditions.
Asset-Intensive Reinsurance
The U.S. asset-intensive reinsurance sub-segment includesconcentrates on the reinsurance ofinvestment
risk within underlying annuities and corporate-owned and bank-owned life insurance ("BOLI").policies.
Most of these agreements are coinsurance or modified coinsurance of
non-mortality risks such that the Company recognizes profit or losses primarily
from the spread between the investment earnings and interest credited on the
underlying deposit liabilities. Several of the coinsurance agreements are on a
funds withheld at interest basis.
Income from continuing operations before income taxes for the thirdfirst quarter and
first nine months of 20032004 was $3.9$3.5 million and $10.8 million, as
compared to $2.5 million and $6.8 million, respectively,a loss of $82 thousand in the comparable prior-year periods.period.
Contributing to the increase for the nine-month periodquarter was a reductionan increase in realized
investment losses to $2.1gains of $3.0 million from $4.3 million in the prior
period coupled with continued growth in the annuity
business.business somewhat offset by the change in the fair value of embedded derivatives
which resulted in a $2.7 million pre-tax loss for the current quarter. The
average asset base supporting this segment grew from $2.7 billion in the first
quarter of 2003 to $3.1 billion for the same quarter in 2004. The growth in the
asset base was primarily driven by new business written on two existing annuity
treaties. Invested assets outstanding as of March 31, 2004 and 2003 were $3.2
billion and $2.7 billion, of which $2.1 billion and $1.5 billion were funds
withheld at interest, respectively.
13
Total revenues, which are comprised primarily of investment income, increased to
$47.1 million and $129.1$45.8 million in the thirdfirst quarter and first nine months of 2003, respectively,2004 from $20.5 million and $68.2$35.8 million for the comparable
prior-year periods. Theperiod. This growth in revenue is primarily the result of new annuity
treaties executed during the
fourth quarter of 2002. Three new annuity treaties
contributed $48.0 million of additional revenues overincrease in the prior year. The
investedaverage asset base for the comparable periods.
Total expenses, which are comprised primarily of interest credited, policy
benefits and acquisition costs increased from $1.7 billion as of September 30, 2002, to $2.4 billion as of December 31, 2002 to $3.0 billion as of September 30, 2003.
Other operating expenses were $0.9 million and $2.8$42.3 million for the thirdfirst quarter and first nine months of 2003, respectively,in
2004 compared to $0.4 million
and $0.7$35.9 million in the comparable prior-year periods. This increaseperiod. The growth in
expenses can be attributed to the significantincrease in interest credited, which is
generally offset by the increase in investment income, both of which are the
result of the growth in the asset base supporting this sub-segment in recent years.segment.
Financial Reinsurance
The U.S. financial reinsurance sub-segment includes net fees earned on financial
reinsurance agreements. Financial reinsurance agreements represent low risk
business that the Company assumes and generally subsequently retrocedes with a
net fee earned on the transaction. The fees earned from the assumption of
financial reinsurance contracts are reflected in other revenues, and the fees
paid to retrocessionaires are reflected in policy acquisition costs and other
insurance expenses.
Income from continuing operations before income taxes increaseddecreased to $3.3 million
and $8.9$2.7 million in the thirdfirst quarter and first nine months of
2003,
respectively,2004, from $1.7 million and $5.4$2.9 million in the comparable prior-year periods. These results areperiod. The decline in
income can be attributed to higher amounts ofa slight decrease in the net fee earned on the
financial reinsurance provided. At March 31, 2004 and 2003, financial
reinsurance outstanding, and lower other operating expenses during the respective periods.
Financial reinsurance outstanding, primarilyas measured by pre-tax statutory surplus, was $826.7 million$1.3
billion and $726.6 million as of September 30, 2003 and
2002,$1.2 billion, respectively. The decreases in other operating expenses for the third
quarter and first nine months of 2003 compared to 2002 were a result of lower
overhead costs being allocated to this sub-segment.
CANADA OPERATIONS
The Company conducts reinsurance business in Canada through RGA Life Reinsurance
Company of Canada ("RGA Canada"), a wholly-owned company. RGA Canada is a
leading life reinsurer in Canada, assisting clients with capital management
activity and mortality risk management, and is primarily engaged in traditional
individual life reinsurance, including preferred underwriting products, as well as creditor and non-guaranteed critical illness
products.
16
FOR THE THREE MONTHS ENDED MARCH 31 (IN THOUSANDS)
(in thousands) FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ------------------------------------2004 2003
2002 2003 2002
----------------- ---------------- ------------------ ----------------------------- ------------
REVENUES:
Net premiums $53,144 $41,894 $153,747 $132,571$ 60,148 $ 48,586
Investment income, net of related expenses 22,244 18,752 63,519 52,13323,980 19,766
Realized investment gains (losses), net 8,596 164 12,158 (22)1,309 (263)
Other revenues 50 118 (191) 40
------- ------- -------- --------38 (65)
------------ ------------
Total revenues 84,034 60,928 229,233 184,72285,475 68,024
BENEFITS AND EXPENSES:
Claims and other policy benefits 56,132 46,278 161,411 137,10459,366 49,130
Interest credited 536 345 1,089 733377 289
Policy acquisition costs and other insurance expenses 5,257 2,880 15,714 12,1427,083 5,593
Other operating expenses 2,580 2,747 7,434 7,315
------- ------- -------- --------2,729 2,385
------------ ------------
Total benefits and expenses 64,505 52,250 185,648 157,29469,555 57,397
Income from continuing operations before income taxes $19,529 $ 8,67815,920 $ 43,585 $ 27,428
======= ======= ======== ========10,627
============ ============
Income from continuing operations before income taxes increased by $10.9$5.3 million and $16.2or 49.8% in the first
quarter of 2004. The increase in 2004 was the result of an increase of $1.6
million in the third quarter and first nine months of 2003,
respectively. Realizedrealized investment gains duringas well as better than expected mortality
experience in the first nine months of 2003
were primarily related to the sale of fixed maturity securities associated with
the restructuring of the investment portfolio to eliminate concentrations in
certain issuers and improve asset-liability matching. These gains accounted for
$8.4 million and $12.2 million of the increase in income from continuing
operations before income taxes for the third quarter and first nine months of
2003, respectively.current year. Additionally, thea stronger Canadian dollar has strengthened againstversus
the U.S. dollar during 2003 relative to 2002, and, as a result, contributed $2.4$1.6 million, and $4.1 millionor 10.1%, to income from continuing operations before income
taxes for the third quarter and the first nine months of 2003, respectively.taxes. Net premiums increased 26.9% and 16.0%by $11.6 million or 23.8% in the third quarter and first nine
months of 2003, respectively.2004. A stronger
Canadian dollar during 20032004 contributed $6.5$7.6 million, or 12.2%, and $14.2 million, or 9.2%12.6%, to net premiums
reported during the third quarter and first nine months of 2003, respectively.2004. Premium levels are significantly influenced by large
transactions, mix of business, and reporting practices of ceding companies and
therefore can fluctuate from period to period.
14
Net investment income increased 18.6%21.3% in 2004. Investment income is allocated to
the segments based upon average assets and 21.8% inrelated capital levels deemed
appropriate to support business volumes. Investment performance varies with the
third quarter and first
nine monthscomposition of 2003, respectively. Theinvestments. In 2004, the increase iswas due to an increase in the
invested asset base and the strengthening of the foreign exchange rate, the
latter of which had an effect of $2.6$2.8 million, or 11.7%, and $5.4 million, or
8.5%, in the third quarter and first nine months of 2003, respectively.. The invested asset base
growth is due to operating cash flows on traditional reinsurance and interest on
the growthan increasing amount of funds withheld at interest.
Claims and other policy benefits as a percentageinterest related to one treaty.
For the first quarter of net premiums (loss ratio)
were 105.6% and 105.0% in2004, the third quarter and first nine months of 2003,
respectively,loss ratio was 98.7% compared to 110.5% and 103.4%101.1% in
the prior-year periods.2003. The decreased percentage for the current quarter is primarily the result
of better mortality experience compared to the prior-year quarter. LossHistorical
loss ratios for this segment have exceeded 100% primarily as a result of several
large inforce blocks assumed in 1998 and 1997. These blocks are mature blocks of
level premium business in which mortality as a percentage of premiums is
expected to be higher than the historical ratios and increase over time. The
nature of level premium policies requires that the Company invest the amounts
received in excess of mortality costs to fund claims in the later years. Claims
and other policy benefits as a percentage of net premiums and investment income
were 74.5% and
74.3%70.6% for the quarter and first nine months of 2003, respectively,2004 compared to 76.3% and 74.2%71.9% in 2002.2003. Management believes death claims
are reasonably predictable over a period of many years, but are less predictable
over shorter periods and are subject to significant fluctuation.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums totaled 9.9% and 10.2%11.8% for the third quarter and first nine months of
2003, respectively,2004 compared to 6.9% and 9.2%11.5% in the prior-year periods.
17
The increase in policy acquisition costs as a percentage of net premiums was
primarily affected by an increase in the level of creditor business, which upon
loss of life reinsures the amount of unpaid principal on mortgage or auto loans.
This type of reinsurance has significant allowances for commissions.2003. Policy acquisition
costs and other insurance expenses as a percentage of net premiums varies from
period to period primarily due to the mix of business in the segment.
OTHER INTERNATIONALEUROPE & SOUTH AFRICA OPERATIONS
The Other International Operations reportable segment comprises the Asia Pacific
segment and the Europe & South Africa segment. The Asia PacificThis segment provides life reinsurance for a variety of life products through yearly
renewable term and coinsurance agreements, and reinsurance of accelerated
critical illness (paidcoverage (pays on the earlier of death or diagnosis of a
pre-defined critical illness), disability
income, and financial reinsurance to life insurance companies throughout the
Asian region, with primary focus on Australia, Hong Kong, Japan, Malaysia, South
Korea, and Taiwan. The Europe & South Africa segment provides life reinsurance
for a variety of life products through yearly renewable term and coinsurance
agreements and the reinsurance of accelerated critical illness coverage. The
Europe & South Africa segment has business primarily from the United Kingdom,
South Africa and Spain.. Reinsurance agreements for both segments may be either facultative
or automatic agreements covering primarily individual risks and in some markets,
group risks.
EachFOR THE THREE MONTHS ENDED MARCH 31 (IN THOUSANDS)
2004 2003
------------ ------------
REVENUES:
Net premiums $ 117,203 $ 83,877
Investment income, net of related expenses 1,544 840
Realized investment gains, net 3,159 825
Other revenues 438 (176)
------------ ------------
Total revenues 122,344 85,366
BENEFITS AND EXPENSES:
Claims and other policy benefits 81,997 53,783
Policy acquisition costs and other insurance expenses 29,031 25,534
Other operating expenses 4,682 3,440
Interest expense 374 200
------------ ------------
Total benefits and expenses 116,084 82,957
Income before income taxes $ 6,260 $ 2,409
============ ============
Income before income taxes during the first quarter of 2004 compared to 2003
increased 159.9% from $2.4 million to $6.3 million, driven by a 39.7% growth in
premiums and a higher level of realized gains on investment transactions. In
addition, strengthening foreign currencies contributed $0.6 million to income
before income taxes for the first quarter over the same period in 2003.
The 39.7% growth in net premiums for the quarter was primarily due to new
business from existing treaties and from new treaties, combined with favorable
currency exchange rates. Several foreign currencies, particularly the British
pound, the euro, and the South African rand, strengthened against the U.S.
dollar in 2004 versus the same
15
period in 2003. The effect of the strengthening of the local currencies was an
increase in 2004 premiums of $17.4 million over 2003. Also, a portion of the
growth of premiums was due to reinsurance of accelerated critical illness. This
coverage provides a benefit in the event of a death from or the diagnosis of a
defined critical illness. Premiums associated with this coverage totaled $45.6
million for the three months ended March 31, 2004 compared with $38.6 million
for the same period in 2003. Premium levels are significantly influenced by
large transactions and reporting practices of ceding companies and therefore can
fluctuate from period to period.
Net investment income increased by $0.7 million in the first quarter of 2004 due
to growth in the investment assets in the UK and South Africa, growth in the
allocated invested asset base, and favorable exchange rates. Investment
performance varies with the composition of investments and the relative
allocation of capital to the operating segments.
Loss ratios were 70.0% and 64.1% in the first quarter of 2004 and 2003,
respectively. Death claims are reasonably predictable over a period of many
years, but are less predictable over shorter periods and are subject to
significant fluctuation.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums represented 24.8% and 30.4% in the first quarter of 2004 and 2003,
respectively. These percentages fluctuate due to variations in the mixture of
business being reinsured and the relative maturity of the business. In addition,
as the segment grows, renewal premiums, which have lower allowances than first
year premiums, represent a greater percentage of the total premiums.
Accordingly, the ratio of allowances to premiums declines.
Policy acquisition costs are capitalized and charged to expense in proportion to
premium revenue recognized. Acquisition costs, as a percentage of premiums,
associated with some treaties in the United Kingdom are typically higher than
those experienced in the Company's other segments. Future recoverability of the
capitalized policy acquisition costs on this business is primarily sensitive to
mortality and morbidity experience. If actual experience suggests higher
mortality and morbidity rates going forward than currently contemplated in
management's estimates, the Company may record a charge to income, due to a
reduction in deferred acquisition costs and, to the extent there are no
unamortized acquisition costs, an increase in future policy benefits.
Other operating expenses increased 36.1% in the first quarter of 2004. The
increase in other operating expenses is due to an increase in costs associated
with maintaining and supporting the significant increase in business over the
past year. As a percentage of premiums, other operating expenses decreased
slightly to 4.0% in the first quarter 2004 from 4.1% in the first quarter 2003.
The Company believes that sustained growth in premiums should lessen the burden
of start-up expenses and expansion costs over time.
16
ASIA PACIFIC OPERATIONS
The Asia Pacific segment writes business primarily in Australia, Hong Kong,
Japan, Malaysia, New Zealand, South Korea and Taiwan. The principal types of
reinsurance for this segment include life, critical care and illness, disability
income, superannuation, and financial reinsurance. Superannuation is the
Australian government mandated compulsory retirement savings program.
Superannuation funds accumulate retirement funds for employees, and in addition,
offer life and disability insurance coverage. Reinsurance agreements may be
either facultative or automatic agreements covering primarily individual risks
and in some markets, group risks. The Company operates multiple offices
throughout each region to best meet the needs of the local client companies.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003MARCH 31 (IN THOUSANDS):
TOTAL
ASIA EUROPE & OTHER
PACIFIC SOUTH AFRICA INTERNATIONAL2004 2003
------------ --------------- ---------------------------
REVENUES:
Net premiums $57,261 $92,502 $149,763$ 103,539 $ 42,410
Investment income, net of related expenses 3,050 1,329 4,3793,735 2,727
Realized investment gains (losses), net (104) 1,040 936347 (387)
Other revenues (11) (105) (116)
------- ------- --------635 200
------------ ------------
Total revenues 60,196 94,766 154,962108,256 44,950
BENEFITS AND EXPENSES:
Claims and other policy benefits 41,101 60,435 101,53674,845 27,264
Policy acquisition costs and other insurance expenses 8,873 27,293 36,16621,530 11,522
Other operating expenses 3,370 3,682 7,0524,742 4,527
Interest expense 323 258 581
------- ------- --------342 269
------------ ------------
Total benefits and expenses 53,667 91,668 145,335101,459 43,582
Income from continuing operations before income taxes $ 6,5296,797 $ 3,098 $ 9,627
======= ======= ========1,368
============ ============
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 (IN THOUSANDS):
TOTAL
ASIA EUROPE & OTHER
REVENUES: PACIFIC SOUTH AFRICA INTERNATIONAL
------------ --------------- ---------------
Net premiums $ 32,839 $62,172 $95,011
Investment income, net of related expenses 1,722 343 2,065
Realized investment gains, net 48 8 56
Other revenues 431 440 871
-------- ------- --------
Total revenues 35,040 62,963 98,003
BENEFITS AND EXPENSES:
Claims and other policy benefits 19,689 37,087 56,776
Policy acquisition costs and other insurance expenses 10,244 20,213 30,457
Other operating expenses 3,809 2,534 6,343
Interest expense 225 148 373
-------- ------- --------
Total benefits and expenses 33,967 59,982 93,949
Income from continuing operations before income
taxes $ 1,073 $ 2,981 $ 4,054
======== ======= =======
18
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 (IN THOUSANDS):
TOTAL
ASIA EUROPE & OTHER
PACIFIC SOUTH AFRICA INTERNATIONAL
------------- -------------- ---------------
REVENUES:
Net premiums $165,836 $259,829 $425,665
Investment income, net of related expenses 8,198 2,808 11,006
Realized investment gains (losses), net (622) 1,888 1,266
Other revenues 896 18 914
-------- -------- --------
Total revenues 174,308 264,543 438,851
BENEFITS AND EXPENSES:
Claims and other policy benefits 115,555 161,668 277,223
Policy acquisition costs and other insurance expenses 33,401 81,516 114,917
Other operating expenses 12,086 11,228 23,314
Interest expense 842 722 1,564
-------- -------- --------
Total benefits and expenses 161,884 255,134 417,018
Income from continuing operations before income
taxes $ 12,424 $ 9,409 $ 21,833
======== ======== ========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (IN THOUSANDS):
TOTAL
ASIA EUROPE & OTHER
PACIFIC SOUTH AFRICA INTERNATIONAL
------------ --------------- ---------------
REVENUES:
Net premiums $ 97,831 $154,327 $252,158
Investment income, net of related expenses 4,876 591 5,467
Realized investment losses, net (125) (288) (413)
Other revenues 1,706 776 2,482
-------- --------- --------
Total revenues 104,288 155,406 259,694
BENEFITS AND EXPENSES:
Claims and other policy benefits 63,849 95,283 159,132
Policy acquisition costs and other insurance expenses 24,260 48,493 72,753
Other operating expenses 10,086 7,883 17,969
Interest expense 613 499 1,112
-------- --------- --------
Total benefits and expenses 98,808 152,158 250,966
Income from continuing operations before income
taxes $ 5,480 $ 3,248 $ 8,728
======== ========= ========
Income from continuing operations before income taxes during the thirdfirst quarter of 20032004 increased by 137.5% from $4.1$1.4
million to $9.6$6.8 million, driven by a 57.6%144.1% growth in net premiums from $95.0$42.4
million to $149.8$103.5 million. ForThe percentage growth in net premiums in comparable
quarters is not indicative of the nine months
ended September 30, 2003, income from continuing operations before income taxes
grew from $8.7 million to $21.8 million, primarily attributable to a 68.8%
increase in premiums from $252.2 million to $425.7 millionpercentages we expect for the nine months
ended September 30, 2002 and 2003, respectively.year ending
December 31, 2004. In addition to strong premium growth, strengthening foreign
currencies contributed $1.1 million and $2.5$0.6 million to income from continuing operations before income taxes for the thirdfirst
quarter and the first nine months of 2003, respectively.2004.
The growth in net premiums for the quarter is attributable to growth in both
segments, with the Asia Pacific segment increasing premiums by 74.4% and the
Europe & South Africa segment growing by 48.8%. For the nine months ended
September 30, 2003, net premiums for the Asia Pacific segment increased 69.5%,
and for the Europe & South Africa segment net premiums increased 68.4%, in each
case, over the comparable period for 2002. The
19
growth has beenwas
generated by new business premiums from facultative and automatic treaties and
renewal premiums from existing treaties, including premiums associated with
accelerated critical illness coverage. The growth has also been aided by
favorable exchange rates, with several of the local currencies strengthening
significantly against the U.S. dollar. Stronger local currencies contributed
approximately $9.9$14.0 million, or 6.6%, and $28.2 million,
or 6.6%13.5%, to net premiums for the thirdfirst quarter and first nine months of
2003,
respectively.2004. Premiums earned during the thirdfirst quarter and first nine months associated with critical illness
coverage totaled $44.1$8.4 million and $123.1
million, respectively, compared to $34.6 million and $84.9$2.6 million in the prior-year periods.period.
Premium levels are significantly influenced by large transactions and reporting
practices of ceding companies and therefore may fluctuate from period to period.
Net investment income increased to $4.4$3.7 million in the thirdfirst quarter of 2003 and
$11.0 million for the nine months ended September 30, 20032004 due
to an increase in allocated assets supporting the growth in the overall
business. Investment income and realized investment gains and losses are
allocated to the operating segments on the basis of capital required to support
underlying business and investment performance varies with the composition of
investments and the relative allocation of capital to units.
Claims and other policy benefits as a percentage of net premiums (loss ratio)
were 67.8% and 59.8%, in the third quarter of 2003 and 2002, respectively.
Claims as a percentage of net premiumsLoss ratios in Asia Pacific increased from 60.0% to
71.8%, and increased from 59.7% to 65.3% in Europe & South Africa. For the nine
months ended September 30, 2003, the percentage for the Other International
segment increased to 65.1% from 63.1% for the nine months ended September 30,
2002. The Asia Pacific sub-segment reported loss ratios of 69.7% and 65.3% for
the nine months ended September 30, 2003 and 2002, respectively. Europe & South
Africa reported a loss ratio of 62.2%64.3% for the first nine monthsquarter of 2003
and
61.7%to 72.3% for the comparable prior-year period. Claims and other policy benefits
include claims paid, claims2004. This ratio will fluctuate due to timing of client company
reporting, variations in the coursemixture of paymentbusiness being reinsured, and establishmentthe
relative maturity of additional reserves to provide for unreported claims.the business. Management believes death claims are
reasonably predictable over a period of many years, but are less predictable
over shorter periods and are subject to significant fluctuation.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums were 24.1%20.8% in the thirdfirst quarter of 20032004 compared to 32.1%27.2% in 2002. For
the nine months ended September 30, 2003, the ratio decreased to 27.0% for 2003
versus 28.9% for the nine months ended September 30, 2002.first
quarter of 2003. These percentages fluctuate due to the timing of client company
reporting and variations in the type of business being written, along with the
mix of new and renewal business.
17
Other operating expenses for the quarter declined from 6.7%10.7% of premiums in 20022003
to 4.7%4.6% in 2003. The comparable figures for the nine months declined to 5.5% in
2003 versus 7.1% in 2002.2004. If the segment continues to grow in terms of net premiums, as
expected, the burden of start-up expenses and expansion costs should be
alleviated in future periods. Interest expense increased in 20032004 over 20022003 due
to higher interest rates, an increase in debt levels in Europe & South
AfricaAustralia to support the
growth in operations, and the effect of foreign exchange rates increasing
against the U.S. dollar over the prior year.
CORPORATE AND OTHER OPERATIONS
Corporate and Other operationsrevenues include investment income onfrom invested assets not
allocated to support segment operations and undeployed proceeds from the
Company's capital raising efforts, in addition to unallocated realized capital
gains or losses. General corporate expenses consist of unallocated overhead and
executive costs and interest expense related to debt and the $225.0 million of
5.75% mandatorily redeemable trust preferred securities. Additionally, the
Corporate and Other operations segment includes results from RGA Technology
Partners ("RTP"), a wholly-owned subsidiary that develops and markets technology
solutions for the insurance industry, the Company's Argentine privatized pension
business, which is currently in run-off (see discussion of status below), and an
insignificant amount of direct insurance operations in Argentina.
20
FOR THE THREE MONTHS ENDED MARCH 31 (IN THOUSANDS)
(in thousands) FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ------------------------------------2004 2003
2002 2003 2002
----------------- ---------------- ------------------ ----------------------------- ------------
REVENUES:
Net premiums $ 799591 $ (1,443) $ 2,777 $ (153)437
Investment income, net of related expenses 3,678 729 12,443 19,0424,738 4,777
Realized investment losses,gains (losses), net (1,546) (739) (3,551) (5,110)5,899 (1,898)
Other revenues 1,761 655 4,547 187
--------- --------- -------- --------1,355 1,087
------------ ------------
Total revenues 4,692 (798) 16,216 13,96612,583 4,403
BENEFITS AND EXPENSES:
Claims and other policy benefits 1,746 (1,941) 2,376 (2,209)976 (1,917)
Interest credited 93 1,747 232 2,07469 47
Policy acquisition costs and other insurance expenses 106 (675) 1,676 30854 579
Other operating expenses 5,397 5,447 15,363 12,5567,071 4,393
Interest expense 8,802 8,633 25,820 25,363
--------- --------- -------- --------8,822 8,490
------------ ------------
Total benefits and expenses 16,144 13,211 45,467 38,09216,992 11,592
Loss from continuing operations before income taxes $(11,452) $(14,009) $(29,251) $(24,126)
======== ======== ======== ========$ (4,409) $ (7,189)
============ ============
Loss from continuing operations before income taxes decreased 18.3%38.7% during the thirdfirst quarter of 2004
primarily due to a $7.8 million increase in realized investment gains, offset in
part by a $2.9 million increase in claims and increased 21.2% for the first nine months of 2003, comparedother policy benefits and a $2.7
million increase in other operating expenses. The increase in claims and other
policy benefits related to the same periods in 2002. Fluctuations in the results for the Corporate and
Other segment are generally driven by investment income allocations which are
based upon average assets and related capital levels deemed appropriate to
support the Company's other operating segment business volumes. Additional
factors that could cause significant variances in comparable results for this
segment are claims on the Argentine privatized pension business,
which reported negative claims and realizedother policy benefits in the prior-year
period as a result of foreign currency gains associated withon its Argentine peso business.
Other operating expenses increased primarily due to higher compensation related
expenses.
As discussed in the Company's Form 10-K for the period ending December 31, 2003,
certain regulations were pending relating to permanently disabled participants
of the privatized pension plans administered by Administradoras de Fondos de
Jubilaciones y Pensiones ("AFJPs"). Recently, the Argentine peso.government enacted
those regulations. The new regulations require permanently disabled AFJP plan
participants to elect a programmed withdrawal or an annuity with respect to
deferred disability claims at a time when the AFJP fund unit values are
significantly inflated. The new regulations are expected to accelerate permanent
disability payments from reinsurers; particularly with respect to plan
participants that elect programmed withdrawal. The Company cannot predict the
percentage of plan participants that will elect programmed withdrawal as opposed
to an annuity. Also, as discussed in the Company's Form 10-K, the Company had
placed the Argentine Government on notice of its intent to file an arbitration
with respect to alleged violations of the Treaty on Encouragement and Reciprocal
Protection of Investments, between the Argentine Republic and the United States
of America, dated November 14,
18
1991 (the "Treaty"). On March 24, 2004, RGA Reinsurance filed a request for
arbitration of its dispute relating to these alleged violations pursuant to the
Washington Convention of 1965 on the Settlement of Investment Disputes under the
auspices of the International Centre for Settlement of Investment Disputes of
the World Bank.
DISCONTINUED OPERATIONS
For the third quarter and first nine months of 2003, theThe discontinued accident and health division reported losses,a loss, net of income taxes, of
$0.5 million and
$1.9 million, respectively, compared to losses, net of income taxes, of $1.1
million and $3.3$0.9 million for the prior year comparable periods.first quarter of 2004 compared to a loss, net of taxes, of
$0.4 million for the first quarter of 2003. The calculation of the claim reserve
liability for the entire portfolio of accident and health business requires
management to make estimates and assumptions that affect the reported claim
reserve levels. ThoseManagement must make estimates and assumptions are based on
historical loss experience, changes in the nature of the business, anticipated
outcomes of claim disputes and claims for rescission, and projected future
premium run-off, all of which may affect the level of the claim reserve
liability. Due to the significant uncertainty associated with the run-off of
this business, net income in future periods could be affected positively or
negatively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended September
30, 2003 and 2002 was $198.1 million and $216.3 million, respectively. Cash
flows from operating activities are affected by the timing of premiums received,
claims paid, and working capital changes. The Holding Company expects the short-term
cash requirements of its business operations will be sufficiently met by the
positive cash flows generated. Additionally, the Company maintains a fixed
maturity portfolio that it believes is high quality with good liquidity
characteristics. These securities are classified on the condensed consolidated
balance sheet as available-for-sale and management believes they could be sold
to meet the Company's obligations, if necessary.
Net cash used in investing activities was $441.2 million and $384.2 million in
2003 and 2002, respectively. Changes in cash provided by or used in investing
activities primarily relate to the management of the Company's investment
portfolios and the investment of excess funds generated by operating and
financing activities.
21
Net cash provided by financing activities was $284.8 million and $73.2 million
in 2003 and 2002, respectively. Changes in cash provided by financing activities
primarily relate to the issuance of equity or debt securities, borrowings or
payments under the Company's existing credit agreements, treasury stock
activity, and excess deposits or withdrawals under investment type contracts.
Upon closing of the transaction with Allianz Life, the Company expects to
receive cash from Allianz Life in excess of the $310 million ceding commission
that the Company will pay to Allianz Life. The excess amount will not be
determined until the transaction is closed.
RGA is a holding company whose primary uses of liquidity include, but are not
limited to, the immediate capital needs of its operating companies associated
with the Company's primary businesses, dividends paid by RGA to its
shareholders, interest payments on its senior indebtedness and junior
subordinated notes (See Notes 15, "Long-Term Debt," and 16, "Issuance of Trust
Piers Units," in the Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 25, 2003 ("Current Report"))Annual Report), and repurchases of RGA common stock
under a plan approved by the board of directors. In 2001, the Company's board of
directors approved a repurchase program authorizing RGA to purchase up to $50.0
million of its shares of stock. RGA purchased approximately 0.2 million shares
of treasury stock under the program at an aggregate cost of $6.6 million during
2002. The Company has not purchased any of its shares since 2002 and has no
plans to purchase additional shares at this time. The primary sources of RGA's
liquidity include proceeds from its capital raising efforts, interest income on
undeployed corporate investments, interest income received on surplus notes with
two operating subsidiaries, and dividends from operating subsidiaries. As the
Company continues its expansion efforts, RGA will continue to be dependent on
these sources of liquidity.
RGA expects to completeCash Flows
The Company's net cash flows from operating activities for the saleperiods ended
March 31, 2004 and 2003 were $375.8 million and $131.1 million, respectively.
Cash flows from operating activities are affected by the timing of 10,500,000 sharespremiums
received, claims paid, and working capital changes. The Company believes the
short-term cash requirements of its commonbusiness operations will be sufficiently met
by the positive cash flows generated. Additionally, the Company maintains a high
quality fixed maturity portfolio with good liquidity characteristics. These
securities are available for sale and generally can be easily sold to meet the
Company's obligations, if necessary.
Net cash used in investing activities was $242.4 million and $204.6 million in
2004 and 2003, respectively. Changes in cash provided by investing activities
primarily relate to the management of the Company's investment portfolios and
the investment of excess capital generated by operating and financing
activities.
Net cash provided by financing activities was $37.0 million and $105.7 million
in 2004 and 2003, respectively. Changes in cash provided by financing activities
primarily relate to the issuance of equity or debt securities, borrowings or
payments under the Company's existing credit agreements, treasury stock
on
November 13, 2003 at a price per share of $36.65 generating estimated net
proceeds of approximately $371.8 million. RGA has granted the underwriters a
30-day option to purchase an additional 1,575,000 shares of RGA's common stock.
RGA expects to use the net proceeds for general corporate purposes, including
funding its reinsurance operations. Pending such use, RGA expects to invest the
net proceeds in interest-bearing, investment-grade securities, short-term
investments,activity, and excess deposits or similar assets. MetLife, Inc. has indicated that itwithdrawals under investment type contracts.
Debt and its
affiliates are interested in purchasing 3,000,000 shares of common stock in the
offering having a total purchase price of $109,950,000. If MetLife, Inc.
purchases these shares, immediately after this offering, it will beneficially
own approximately 53.4% of RGA's common stock outstanding as of September 30,
2003, assuming the underwriters do not exercise their option to purchase
additional shares.Preferred Securities
Certain of the Company's debt agreements contain financial covenant restrictions
related to, among others, liens, the issuance and disposition of stock of
restricted subsidiaries, minimum requirements of net worth ranging from $600
million to $700 million, and minimum rating requirements. A material ongoing
covenant default could require immediate payment of the amount due, including
principal, under the various agreements. Additionally, the Company's debt
agreements contain cross-default covenants, which would make outstanding
borrowings immediately payable in the event of a material uncured covenant
default under any of the agreements, including, but not limited to, non-payment
of indebtedness when due for amounts greater than $10 million or $25 million
19
depending on the agreement, bankruptcy proceedings, and any event which results
in the acceleration of the maturity of indebtedness. As of September 30, 2003,March 31, 2004, the
Company had $394.2$404.1 million in outstanding borrowings under its debt agreements
and was in compliance with all covenants under those agreements.
The Company's U.S. credit facility expires in May 2006 and has a total capacity
of $175.0 million. The Company generally may not pay dividends under the credit
agreement unless, at the time of declaration and payment, a default would not
exist under the agreement. As of March 31, 2004, the Company had $50.0 million
outstanding under this facility and the average interest rate on all long-term
debt outstanding, excluding the Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely junior subordinated
debentures of the Company ("Trust Preferred Securities"), was 6.06%. Interest is
expensed on the face amount, or $225.0 million, of the Trust Preferred
Securities at a rate of 5.75%.
Statutory Dividend Limitations
The ability of the Company to make debt principal and interest payments depends
primarily on the earnings and surplus of its subsidiaries, investment earnings
on undeployed capital proceeds, and the Company's ability to raise additional
funds. At September 30, 2003,March 31, 2004, Reinsurance Company of Missouri, Incorporated ("RCM")
and RGA Canada had statutory capital and surplus of $609.8$819.2 million and $206.6$237.4
million, respectively. RCM's primary asset is its investment in RGA Reinsurance
Company, the Company's principal operating subsidiary based in Missouri. RGA Reinsurance Company (Barbados) Ltd., which we refer to as "RGA
Barbados," and RGA Americas Reinsurance Company, Ltd., which we refer to as "RGA
Americas," do not have material restrictions on their ability to pay dividends
out of retained earnings. The
transfer of funds from the subsidiaries to RGA is subject to applicable
insurance laws and regulations. The Company expects any future increases in
liquidity needs due to treaty recaptures, relatively large policy loans or
unanticipated material claims levels would be met first by operating cash flows from operating activities
and then by selling fixed-income securities or short-term investments.
The Company's U.S. credit facility expires in May 2006Future Liquidity and hasCapital Needs
During the first quarter of 2004, RGA Reinsurance Company became a total capacitymember of $175.0 million. The Companythe
Federal Home Loan Bank of Des Moines ("FHLB"). One of the benefits of being a
member is prohibited from paying dividends under the credit agreement unless, at the time of declaration and payment, a default would
not exist under the agreement.ability to borrow money on short notice by pledging investments.
As of September 30, 2003,March 31, 2004, the Company had $50.0
millionno outstanding under this facility andborrowing from or assets
pledged to the average interest rate on all
long-term debt outstanding, excluding the Company-obligated mandatorily
redeemable preferred securities of subsidiary trust holding solely junior
subordinated debentures of the Company ("Trust Preferred Securities"), was
6.00%. Interest is expensed on the face amount, or $225.0 million, of the Trust
Preferred Securities at a rate of 5.75%.
22
FHLB. Based on the historic cash flows and the current financial
results of the Company, subject to any dividend limitations which may be imposed
by various insurance regulations, or our credit facility, management expectsbelieves RGA's cash flows from
operating activities, together with undeployed proceeds from its capital raising
efforts, including interest and investment income on those proceeds, interest
income received on surplus notes with two operating subsidiaries, and its potential
ability to raise funds in the capital markets, will be sufficient to enable RGA
to make dividend payments to its shareholders, to make interest payments on its
senior indebtedness and junior subordinated notes, to repurchase RGA common
stock under the plan approved by the board of directors, and to meet its other
obligations. The Company did not purchase any
RGA common stock during the first nine months of 2003 and purchased
approximately 0.2 million shares at an aggregate cost of $6.6 million during
2002.
A general economic downturn or a downturn in the equity and other capital
markets could adversely affect the market for many annuity and life insurance
products. Because the Company obtains substantially all of its revenues through
reinsurance arrangements that cover a portfolio of life insurance products, as
well as annuities, its business would be harmed if the market for annuities or
life insurance were adversely affected.
INVESTMENTS
The Company had total cash and investmentsinvested assets of $7.9$9.6 billion and $5.9$7.2 billion
as
of September 30,at March 31, 2004 and 2003, and 2002, respectively. All investments made by RGA and its
subsidiaries conform in all material respects to the qualitative and quantitative limits prescribed by
the applicable jurisdiction's insurance laws and regulations. In addition, the
Boards of Directors of the various operating companies' boards of directorscompanies periodically review the
investment portfolios of their respective subsidiaries. The RGA Board of
Directors also receives reports on material investment portfolios. The Company's
investment strategy is to maintain a predominantly investment-grade, fixed
maturity portfolio, with a goal of providingto provide adequate liquidity for expected reinsurance
obligations, and maximizingto maximize total return through prudent asset management. The
Company's asset/liability duration
matching differs between the various operating segments. The target duration for
U.S. portfolios, which are segmented along product lines, range between four and
seven years. Based on Canadian reserve requirements, a portion of the Canadian
liabilities is strictly matched with long-duration Canadian assets, with the
remaining assets invested to maximize the total rate of return, given the
characteristics of the corresponding liabilities and Company liquidity needs.
The Company's earned yield on investmentsinvested assets, excluding funds withheld, at interest
was 6.59% for the third quarters of 2003 and 2002, respectively.5.83%
through March 31, 2004, compared with 6.67% through March 31, 2003. See "Note 5
- - INVESTMENTS" in the Notes to Consolidated Financial Statements of the Current2003
Annual Report for additional information regarding the Company's investments.
The Company's fixed maturity securities are invested primarily in commercial and
industrial bonds, public utilities, U.S. and Canadian government securities, andas
well as mortgage and asset-backed securities. As of September 30, 2003,March 31, 2004,
20
approximately 98%98.0% of the Company's consolidated investment portfolio of fixed
maturity securities was investment-grade. Important factors in the selection of
investments include diversification, quality, yield, total rate of return
potential, and call protection. The relative importance of these factors is
determined by market conditions and the underlying product or portfolio
characteristics. Cash equivalents are invested in high-grade money market
instruments. The largest asset class in which fixed maturities were invested was
in corporate securities, including commercial, industrial, finance and industrialutility
bonds, which represented approximately 52.9%60.4% and 59.1% of fixed maturity
securities as of September 30,March 31, 2004 and 2003, an increase from 32.2% as of December 31,
2002. A majority of these securities were classified asrespectively. These corporate
securities withhad an average Standard and Poor's ("S&P") rating of "A"A+ at September 30, 2003.
The Company owned floating rate securities that represented approximately 2.1%
of fixed maturity securities at September 30, 2003, compared to 2.8% at DecemberMarch 31,
2002. These investments may have a higher degree of income variability than
the other fixed income holdings in the portfolio due to the floating rate nature
of the interest payments.2004.
Within the fixed maturity security portfolio, the Company heldholds approximately
$78.0$75.4 million in asset-backed securities at September 30, 2003,March 31, 2004, which includedinclude credit
card and automobile receivables, home equity loans and collateralized bond
obligations. The Company's asset-backed securities are diversified by issuer and
contain both floating and fixed rate securities. Approximately 3.4%,
or $2.7 million are collateralized bond obligations. In addition to the risks
associated with floating rate securities, principal risks in holding
asset-backed securities are structural, credit and capital market risks.
Structural risks include the securities'securities priority in the issuer's capital
structure, the adequacy of and ability to realize proceeds from collateral, and
the potential for prepayments. Credit risks include consumer or corporate
credits such as credit card holders, equipment lessees, and corporate obligors.
Capital market risks include general level of interest rates and the liquidity
for these securities in the marketplace.
23
The Company monitors its fixed maturity securities to determine impairments in
value. In conjunction with its external investment managers, the Company
evaluates factors such as financial condition of the issuer, payment
performance, the length of time and the extent to which the market value has
been below amortized cost, compliance with covenants, general market conditions
and industry sector, intent and ability to hold securities, and various other
subjective factors. As of September 30, 2003, the Company held fixed maturities
with a cost basis of $7.9 million and a market value of $9.2 million, or 0.2% of
fixed maturities, that were not accruing interest. Securities, basedBased on management's judgment, securities with an
other-than-temporary impairment in value are written down to fair value. The
Company recorded other-than-temporary write-downs of $4.7$0.1 million and $16.6$8.8
million forduring the threefirst quarter of 2004 and nine months
ended September 30, 2003, respectively, compared to $9.0 million and $24.3
million for the comparable prior-year periods.respectively. The
circumstances that gave rise to these impairments were primarily bankruptcy proceedings
orand deterioration in collateral value supporting certain asset-backed
securities. During the first
nine months of 2003,2004, the Company sold fixed maturity securities with a fair
value of $284.5$18.2 million that resulted inat a net loss of $38.1$0.3 million.
The following table presents the total gross unrealized losses as of September
30, 2003 for 216 fixed
maturity securities where the estimated fair value had declined and remained
below amortized cost by the indicated amount (in thousands):
At September 30, 2003
-----------------------------------------------March 31, 2004
-------------------------------
Gross Unrealized
Losses % of Total
------------------- ------------------------------------ ----------
Less than 20% $20,086 81.8%$ 9,177 100%
20% or more for less than six months 3,790 15.4%- -%
20% or more for six months or greater 692 2.8%
------ ------ -%
---------------- ----------
Total $24,568 100.0%$ 9,177 100%
While all of these securities are monitored for potential impairment, the
Company's experience indicates that the first two categories generally do not present as
great a risk of impairment, asand often, fair values often recover over time. These
securities have generally been adversely affected by the downturn in the
financial markets and overall economic
conditions.
The21
All gross unrealized losses of $0.7
million on fixed maturity securities whose book value has exceeded market value
by 20% or more for at least six months all related to Canadian zero coupon
bonds, the maturities of which are long term. Small movements in interest rates
can have a significant impact on the fair value of these securities. The Company
believes that the analysis of each security indicated that the financial
strength, liquidity, leverage, future outlook and/or recent management actions
support the view that the security was not other-than-temporarily impaired as of
September 30, 2003.been outstanding less than 12 months. The
following table presents the fair value and total gross unrealized losses for
216 fixed maturity securities as of September 30, 2003,March 31, 2004, by class of security, and
breaksbroken out between investment and non-investment grade investments for which market value has
been below amortized cost for the length of time indicated (in
thousands):
Number of months
----------------------------------------------
More than
six, but
Less than less than Over
six twelve twelve Total
--------- --------- ------ -----Gross
Unrealized
Fair Value Losses
------------ ------------
Investment grade securities:
Commercial and industrial $ 8,896 $2,383 $1,230 $12,509179,659 $ 3,930
Public utilities 568 43 3,914 4,52548,481 1,106
Asset-backed securities 223 -- -- 2237,422 226
Canadian and Canadian provincial governments 228 673 114 1,01517,475 736
Mortgage-backed securities 3,357 36 1 3,39411,309 195
Finance 1,043 -- -- 1,04354,811 1,393
U.S. government and agencies 127 -- -- 12746,462 313
Foreign governments 633 -- -- 633
------- ------ ------ -------89,169 1,187
------------ ------------
Investment grade securities $15,075 $3,135 $5,259 $23,469
------- ------ ------ -------$ 454,788 $ 9,086
============ ============
24
More than
six, but
Less than less than Over
six twelve twelve Total
--------- --------- ------ -----Gross
Unrealized
Fair Value Losses
------------ ------------
Non-investment grade securities:
Commercial and industrial $ 898153 $ -- $ -- $ 898
Public utilities 62 -- 139 201
------- ------ ------ -------1
Asset-backed securities 900 90
------------ ------------
Non-investment grade securities 960 -- 139 1,099
------- ------ ------ -------1,053 91
------------ ------------
Total $16,035 $3,135 $5,398 $24,568
======= ====== ====== =======$ 455,841 $ 9,177
============ ============
Approximately $7.0 million of the total unrealized losses were related to
securities issued by the airline, financial, automotive, telecommunication, and
utility sectors. These securities have generally been adversely affected by the
downturn in the financial markets and overall economic conditions.
The Company believes that the analysis of each such security whose price has been
below market for greater than twelve months indicated that the financial
strength, liquidity, leverage, future outlook and/or recent management actions
support the view that the security was not other-than-temporarily impaired as of
September
30, 2003.March 31, 2004. Additionally, 99.0% of the gross unrealized losses are
associated with investment grade securities.
The Company's mortgage loan portfolio consists principally of investments in
U.S.-based commercial offices and retail locations. The mortgage loan portfolio
is diversified by geographic region and property type. AllSubstantially all
mortgage loans wereare performing and no valuation allowance hadhas been established as
of September 30,
2003.March 31, 2004.
Policy loans present no credit risk because the amount of the loan cannot exceed
the obligation due the ceding company upon the death of the insured or surrender
of the underlying policy. The provisions of the treaties in force and the
underlying policies determine the policy loan interest rates. Because policy
loans represent premature distributions of policy liabilities, they have the
effect of reducing future disintermediation risk. In addition, the Company earns
a spread between the interest rate earned on policy loans and the interest rate
credited to corresponding liabilities.
Funds withheld at interest comprised approximately 31.2% and 29.7%30.6% of the Company's
investments as of September 30, 2003March 31, 2004 and December 31, 2002,
respectively.2003. For agreements written
on a modified coinsurance basis and certain agreements written on a coinsurance
basis, assets equal to the net statutory reserves are withheld and legally owned
and managed by the ceding company, and are reflected as funds withheld at
interest on RGA's balance sheet. In the event of a ceding company's insolvency,
RGA would need to assert a claim on the assets supporting its reserve
liabilities. However, the risk of loss to RGA is mitigated by its ability to
offset amounts it owes the ceding company for claims or allowances with amounts
owed to RGA from the ceding company. Interest accrues to these assets at rates
defined by the treaty terms. The Company is subject to the investment
performance on the withheld assets, although it does not directly control them.
These assets are primarily fixed maturity investment securities and pose risks
similar to the fixed maturity securities the Company owns. To mitigate some of this
risk, the Company helps set and monitor compliance with,
the investment guidelines followed by thesethe ceding
companies.company and monitors compliance. Ceding companies with funds withheld at
interest had a minimum A.M. Best financial strength
rating of "A-""A".
For further information, see the discussion of Issue B36 in "New
Accounting Standards" below.22
COUNTERPARTY RISK
In the normal course of business, the Company seeks to limit its exposure to
reinsurance contracts by ceding a portion of the reinsurance to other insurance
companies or reinsurers. Should a counterparty not be able to fulfill its
obligation to the Company under a reinsurance agreement, the impact could be
material to the Company's financial condition and results of operations.
MARKET RISK
Market risk is the risk of loss that may occur when fluctuations in interest and
currency exchange rates and equity and commodity prices change the value of a
financial instrument. Both derivative and nonderivative financial instruments
have market risk so the Company's risk management extends beyond derivatives to
encompass all financial instruments held that are sensitive to market risk. RGA
is primarily exposed to interest rate risk and foreign currency risk.
Interest rate riskRate Risk arises from many of the Company's primary activities, as the
Company invests substantial funds in interest-sensitive assets and also has
certain interest-sensitive contract liabilities. The Company manages interest
25
rate risk and credit risk to maximize the return on the Company's capital
effectively and to preserve the value created by its business operations. As
such, certain management monitoring processes are designed to minimize the
impact of sudden and sustained changes in interest rates on fair value, cash
flows, and net interest income.
The Company is subject to foreign currency translation, transaction, and net
income exposure. The Company generally does not hedge the foreign currency
translation exposure related to its investment in foreign subsidiaries as it
views these investments to be long-term. Translation differences resulting from
translating foreign subsidiary balances to U.S. dollars are reflected in equity.
The Company generally does not hedge the foreign currency exposure of its
subsidiaries transacting business in currencies other than their functional
currency (transaction exposure).
Currently, the Company believes its foreign
currency transaction exposure is not material to the consolidated results of
operations.
There has been no significant change in the Company's quantitative or
qualitative aspects of market risk during the quarter ended September 30, 2003March 31, 2004 from
that disclosed in the Current2003 Annual Report.
NEW ACCOUNTING STANDARDS
In July 2003, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts." SOP
03-1 provides guidance on separate account presentation and valuation, the
accounting for sales inducements and the classification and valuation of
long-duration contract liabilities. SOP 03-1 is effective for fiscal years
beginning after December 15, 2003. The Company is inadopted the process of quantifying
the impactprovisions of SOP
03-1 on its consolidated financial statements.January 1, 2004, recording a charge of $361 thousand, net of income
taxes.
In MayJanuary 2003, the Financial Accounting Standards Board ("FASB") issued
Statement
of Financial Accounting Standards ("SFAS") No. 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Effective July 1, 2003, the Company
adopted these provisions of SFAS 150, which did not materially affect the
Company's financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS 149 requires that contracts
with comparable characteristics be accounted for similarly. In particular, SFAS
149 clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative and when a derivative contains a
financing component, amends the definition of an underlying to conform it to
language used in FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", and amends certain other existing pronouncements. SFAS
149 is effective for contracts entered into or modified after June 30, 2003, and
for hedging relationships designated after June 30, 2003. In addition,
provisions of SFAS 149 should be applied prospectively. Effective July 1, 2003,
the Company adopted the provisions of SFAS No. 149 with no impact to the
consolidated financial statements.
In April 2003, the FASB cleared SFAS No. 133 Implementation Issue No. B36,
"Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments
That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially
Related to the Creditworthiness of the Obligor under Those Instruments" ("Issue
B36"). Issue B36 concluded that (i) a company's funds withheld payable and/or
receivable under certain reinsurance arrangements and (ii) a debt instrument
that incorporates credit risk exposures that are unrelated or only partially
related to the creditworthiness of the obligor include an embedded derivative
feature that is not clearly and closely related to the host contract. Therefore,
the embedded derivative feature must be measured at fair value on the balance
sheet and changes in fair value reported in income. Issue B36 is effective
October 1, 2003.
Substantially all of the Company's funds withheld receivable balance is
associated with its reinsurance of annuity contracts. The funds withheld
receivable balance totaled $2.4 billion at September 30, 2003, of which $1.8
billion are subject to the provisions of Issue B36. We believe the embedded
derivative feature in each of these reinsurance treaties is similar to a total
return swap on the assets held by the ceding companies. We have developed cash
flow models as the basis for estimating the value of the total return swap. The
cash flow models are based on our expectations of the future cash flows under
the reinsurance treaties that in turn are driven by the underlying annuity
contracts. The fair value of the total return swap is affected by changes, both
actual and expected, in the cash flows
26
of the underlying annuity contracts, changes in credit risk associated with the
assets held by the ceding company and changes in interest rates. The change in
fair value, which is a non-cash item, also affects the amortization of deferred
acquisition costs since we are required to include it in our expectation of
gross profits. We estimate the initial adoption of Issue B36 will result in a
net gain, after tax and after related amortization of deferred acquisition
costs, of $1.0 million. This estimate is subject to change as we continue to
validate our models and refine our assumptions. Additionally, industry standards
and practices continue to evolve related to valuing these types of embedded
derivative features.
In addition to its annuity contracts, the Company has entered into various
financial reinsurance treaties on a funds withheld and modified coinsurance
basis. These treaties do not transfer significant insurance risk and are
recorded on a deposit method of accounting with the Company earning a net fee.
As a result of the experience refund provisions contained in these treaties, the
value of the embedded derivatives in these contracts is currently considered
immaterial. The Company monitors the performance of these treaties on a
quarterly basis. Significant adverse performance or losses on these treaties may
result in a loss associated with the embedded derivative.
Effective January 1, 2003, the Company adopted the provisions of SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities,Entities" ("FIN 46"),
an interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," andwhich requires the consolidation by a business enterprise
of variable interest entities if the business enterprise is the primary
beneficiary. FIN 46 was effective January 31, 2003, for the Company with respect
to interests in variable interest entities obtained after that date. With
respect to interests in variable interest entities existing prior to February 1,
2003, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees46 (revised December 2003), which
extended the effective date of Indebtedness of Others."FIN 46 to the period ending March 31, 2004. The
adoption of these provisions did not materially affect the Company's financial
position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123." Effective January 1, 2003, the Company prospectively adopted the fair
value-based employee stock-based compensation expense recognition provisions of SFAS No. 123,FIN 46 as amended by SFAS No. 148. The Company formerly applied the
intrinsic value-based expense provisions set forthof March 31, 2004 and is not
required to consolidate any material interests in APB Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB 25"). For the three and nine
month periods ended September 30, 2003, the Company recorded pre-tax
compensation expense of approximately $0.4 million and $1.3 million,
respectively, associated with stock option grants issued during January 2003.variable interest entities.
FORWARD-LOOKING AND CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including,
among others, statements relating to projections of the earnings, revenues,
income or loss, future financial performance and growth potential of Reinsurance
Group of America, Incorporated and its subsidiaries (which we refer(referred to in the
following paragraphs as "we," "us" or "our"). The words "intend," "expect,"
"project," "estimate," "predict," "anticipate," "should," "believe," and other
similar expressions also are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results, performance and achievements could differ materially from those set
forth in, contemplated by or underlying the forward-looking statements.
23
Numerous important factors could cause actual results and events to differ
materially from those expressed or implied by forward-looking statements
including, without limitation, (1) adverse changes in mortality, morbidity or
claims experience, (2) changes in our financial strength and credit ratings or
those of MetLife, Inc. ("MetLife"), athe beneficial owner of a majority of our
common shares, or its subsidiaries, and the effect of such changes on our future
results of operations and financial condition, (3) general economic conditions
affecting the demand for insurance and reinsurance in our current and planned
markets, (4) market or economic conditions that adversely affect our ability to
make timely sales of investment securities, (5) changes in investment portfolio
yields due to interest rate or credit quality changes, (6) fluctuations in U.S.
or foreign currency exchange rates, interest rates, or securities and real
estate markets, (7) adverse litigation or arbitration results, (8) the stability
of governments and economies in the markets in which we operate, (9) competitive
factors and competitors' responses to our initiatives, (10) the success of our
clients, (11) successful execution of our entry into new markets, (12)
successful development and introduction of new products, (13) our ability to
successfully integrate and operate reinsurance business that we acquire,
including without limitation, the traditional life reinsurance business of
Allianz Life, (14) regulatory action that may be taken by state Departments of
Insurance with respect to us, MetLife, or its subsidiaries, (15) changes in
laws, regulations, and accounting standards applicable to us, our subsidiaries,
or our business, and (16) other risks and uncertainties described in this
document and in our other filings with the Securities and Exchange Commission.
27
Commission
("SEC").
Forward-looking statements should be evaluated together with the many risks and
uncertainties that affect our business, including those mentioned in this
reportdocument and the cautionary statements described in the other periodic reports we file
with the Securities and
Exchange Commission.SEC. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date on which they are
made. We do not undertake any obligations to update these forward-looking
statements, even though our situation may change in the future. We qualify all
of our forward-looking statements by these cautionary statements. For a
discussion of these risks and uncertainties that could cause actual results to
differ materially from those contained in the forward-looking statements, you
are advised to consult the sections named "Risk Factors" and "Cautionary
Statement Regarding Forward-Looking Statements" contained in our Registration
Statement on Form S-3, as amended, filed with the SEC on August 25, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk,"Risk" which is incorporated by reference herein.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management, including the
Chief Executive Officer and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures with respect to the information generated for use in this
Quarterly Report. Based upon, and as of the date of that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the disclosure
controls and procedures were effective to provide reasonable assurance that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 are recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.
There was no change in the Company's internal control over financial reporting
during the quarter ended September 30, 2003,March 31, 2004, that has materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.
2824
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The Company is currently a party to various litigation and arbitrations that
involve medical reinsurance arrangements, personal accident business, and
aviation bodily injury carve-out business. As of September 30, 2003,March 31, 2004, the ceding
companies involved in these disputes have raised claims, or established reserves
that may result in claims, that are $50.9$96.1 million in excess of the amounts held
in reserve by the Company. The Company generally has little information
regarding any reserves established by the ceding companies, and it is possible
that any such reserves could be increased in the future. The Company believes it
has substantial defenses upon which to contest these claims, including but not
limited to misrepresentation and breach of contract by direct and indirect
ceding companies. In addition, the Company is in the process of auditing ceding
companies whichthat have indicated that they anticipate asserting claims in the
future against the Company that are $7.8$8.4 million in excess of the amounts held
in reserve by the Company. Depending upon the audit findings in these cases,
they could result in litigation or arbitrations in the future. See Note 21,
to
the Consolidated Financial Statements, "Discontinued Operations",Operations," in the Company's Current2003 Annual Report on Form 8-K filed with the Securities and Exchange
Commission on August 25, 2003, for more
information. FromAdditionally, from time to time, the Company is subject to
litigation and arbitration related to its life reinsurance business and to
employment-related matters in the normal course of its business. While it is not
feasible to predict or determine the ultimate outcome of the pending litigation
or arbitrations or provide reasonable ranges of potential losses, it is the
opinion of management, after consultation with counsel, that their outcomes,
after consideration of the provisions made in the Company's consolidated
financial statements, would not have a material adverse effect on its
consolidated financial position, but could have a positive or negative
effect on net income.position.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) See index to exhibits.
(b) The following reportsreport on Form 8-K have beenwas filed with the SEC since
July 1, 2003:
1.Securities and
Exchange Commission during the quarter ended March 31, 2004:
On July 24, 2003,January 29, 2004, the Company filed a Current Report on Form 8-K
furnishing under Items 9 and 12 a press release discussing results of
operations for the three months ended June 30,December 31, 2003. The press release
was attached thereto as Exhibit 99.1.
2. On August 25 2003, the Company filed a Current Report on Form 8-K
reporting, under Item 5, certain adjustments to the presentation in
the Annual Report of the Company's operating segment financial
information for fiscal years 2002 and 2001 to reflect the change in
operating segment structure effective as of the first quarter of 2003
and to discuss certain other items.
3. On September 22, 2003, the Company filed a Current Report on Form 8-K
furnishing, under Item 9, its press release announcing the execution
of a definitive agreement whereby the Company would acquire through
coinsurance the traditional U.S. life reinsurance business of Allianz
Life Insurance Company of North America. The press release was
attached thereto as Exhibit 99.1.
4. On October 9, 2003, the Company filed a Current Report on Form 8-K,
dated September 22, 2003, reporting under Items 5 and 7 that RGA
Reinsurance Company, the primary operating subsidiary of the Company,
entered into a Master Agreement pursuant to which RGA Reinsurance
Company agreed to purchase and assume through coinsurance the
traditional life reinsurance business of Allianz Life Insurance
Company of North America. The Master Agreement and a Life Coinsurance
Retrocession Agreement were attached thereto as Exhibits 2.1 and 2.2,
respectively.
5. On October 23, 2003, the Company filed a Current Report on Form 8-K
(i) filing under Item 5 a press release reporting that two new
directors had been elected and (ii) furnishing under Items 9 and 12 a
press release discussing results of operations for the nine months
ended September 30, 2003. The press releases were attached thereto as
Exhibits 99.1 and 99.2.
29
6. On November 3, 2003, the Company filed a Current Report on Form 8-K
reporting under Item 5 certain historical financial results, by
segment, certain historical financial information about RGA's
consolidated stockholders' equity, certain additional third quarter
2003 information and certain supplemental data.
7. On November 3, 2003, the Company filed a Current Report on Form 8-K
furnishing under Item 9 its press release announcing the offering of
10,500,000 shares of its common stock. The press release was attached
thereto as Exhibit 99.1.
8. On November 7, 2003, the Company filed a Current Report on Form 8-K
providing under Item 5 the underwriting agreement and opinion of
counsel required in connection with the registration statement on Form
S-3 (File Nos. 333-108200, 333-108200-01 and 333-108200-02) and
providing certain exhibits under Item 7. The press release was
attached thereto as Exhibit 99.1.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Reinsurance Group of America, Incorporated
By: /s/ A. Greig Woodring November 12, 2003
----------------------------------------------May 7, 2004
--------------------------------------
A. Greig Woodring
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Jack B. Lay November 12, 2003
----------------------------------------------May 7, 2004
--------------------------------------
Jack B. Lay
Executive Vice President & Chief Financial
Officer
(Principal Financial and Accounting
Officer)
3126
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
Exhibit
Number Description
- ------- ----------------------------------------------------------------------
2.1 Master Agreement by and between Allianz Life Insurance of North America
and RGA Reinsurance Company, incorporated by reference to Exhibit 2.1 to
Current Report on Form 8-K filed on October 9, 2003 (file no. 1-11848).
2.2 Life Coinsurance Retrocession Agreement by and between Allianz Life
Insurance of North America and RGA Reinsurance Company, incorporated by
reference to Exhibit 2.2 to Current Report on Form 8-K filed on October 9,
2003 (file no. 1-11848).
3.1 Second Restated Articles of Incorporation, incorporated by reference to
Exhibit 3.1 of Post-Effective Amendment No. 2 to the Registration
Statements on Form S-3/A (File Nos. 333-55304, 333-55304-01 and
333-55304-02), filed on September 6, 2001.
3.2 Bylaws of RGA, as amended, incorporated by reference to Exhibit 3.2 to
Form 10-Q for the quarter ended September 30, 2000 (No. 1-11848), filed on
November 13, 2000.
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
32
27