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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL In 1993, Reinsurance Group of America, Incorporated (RGA)
completed an initial public offering of 6,641,250 shares of common stock at
$26.00 per share. After completion of the stock offering on May 4, 1993,
General American Life Insurance Company (General American) owned
approximately 62% of the common stock issued by RGA.
During 1993, General American contributed its investment in RGA Reinsurance
Company (RGA Reinsurance, formerly Saint Louis Reinsurance Company) and G.A.
Canadian Holdings, Ltd. (Canadian Holdings) to RGA. Additionally, General
American entered into an indemnity reinsurance agreement to retrocede
virtually all of its net reinsurance business to RGA Reinsurance effective
January 1, 1993. Subsequently, most of the existing reinsurance agreements
between General American and various ceding companies were transferred to RGA
Reinsurance, replacing General American as the direct party to the treaties.
The net proceeds to RGA from the sale of shares in the initial public
offering were approximately $160.4 million. These proceeds have been utilized
to finance expansion, both domestically and internationally. During 1993, RGA
contributed $95.0 million to its domestic life insurance subsidiary, RGA
Reinsurance, to strengthen its capital base, finance expansion of its
business, and for other general corporate purposes. The remaining proceeds
have been invested in subsidiaries in Argentina, Australia, Barbados,
Bermuda, Canada, Chile and the United Kingdom.
On March 19, 1996, RGA issued 7 1/4% Senior Notes with a face value of
$100,000,000 in accordance with Rule 144A of the Securities Act of 1933. The
net proceeds from the offering of approximately $98,943,000, will be utilized
to finance the continuing development of RGA's operations.
RESULTS OF OPERATIONS RGA and its subsidiaries (the Company) derive
revenues primarily from renewal premiums from existing reinsurance treaties,
new business premiums from existing or new reinsurance treaties, and income
earned on invested assets, as well as direct insurance premiums from its
Latin American subsidiaries.
The Company's primary business is ordinary life reinsurance, which involves
reinsuring life insurance policies that are often in force for the lifetime
of the underlying individual insureds, with premiums earned typically over a
period of 10 to 30 years. Each year, however, a portion of the business under
existing treaties terminates due to, among other things, voluntary surrenders
of underlying life insurance policies, lapses of underlying policies, deaths
of underlying insureds, and the exercise of recapture options.
TABLE OF CONTENTS Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 Consolidated Balance Sheets 23
Consolidated Statements of Income 24 Consolidated Statements of
Stockholders' Equity 25 Consolidated Statements of Cash Flows 26 Notes to
Consolidated Financial Statements 27 Independent Auditors' Report 46
Report of Management Responsibility for Financial Statements 47 Selected
Consolidated Financial and Operating Data 48 Quarterly Data (Unaudited) 49
Management and Shareholders' Information 50
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Most of the Company's existing U.S. ordinary life treaties provide for
contractual increases in premium rates. These premium increases are
constructed to offset expected increases in claims associated with insureds'
advancing ages. Significant new business during the last three years has
increased total net premiums by more than $100.0 million each year. "New
business" refers to reinsurance resulting from newly issued underlying
policies or blocks of existing business, regardless of whether the
reinsurance is associated with new or existing treaties.
Insurance in force for the Company increased $14.4 billion to $168.3 billion
at December 31, 1996, from $153.9 billion at December 31, 1995. New business
production for 1996 totaled $37.9 billion compared to $36.0 billion in 1995
and $43.2 billion in 1994.
As is customary in the reinsurance business, life insurance clients
continually update, refine, and revise reinsurance information provided to
the Company. Such revised information is used by the Company in the
preparation of its financial statements and the financial effects resulting
from the incorporation of revised data are reflected in income currently.
The Company's profitability primarily depends on the volume and amount of
death claims incurred. While death claims are reasonably predictable over a
period of many years, claims become less predictable over shorter periods and
are subject to fluctuation from quarter to quarter and year to year. A
retrocession agreement executed in 1993 served to reduce the impact of
fluctuations in death claims from quarter to quarter and year to year. This
agreement was revised in 1995 to provide a higher level stop loss protection
and covered only claims experience significantly higher than normally
expected. Since the size of the block of business in force and the related
cost of such additional retrocession rendered such high level retrocession
protection uneconomical, the coverage was not renewed in 1997.
The Company has foreign currency risk on business conducted in foreign
currency to the extent that the exchange rate of the foreign currency is
subject to adverse change over time. The Company's Canadian operations
transact business in Canadian dollars. The exchange rate from Canadian to
U.S. currency was 0.7297, 0.7344, and 0.7129 at December 31, 1996, 1995, and
1994, respectively. The Company also conducts business in Chilean pesos,
Argentine dollars, and various other currencies. The exchange rate from these
currencies to U.S. currency has remained relatively stable during 1996, 1995,
and 1994. The business generated from the Asia Pacific region is primarily
denominated in U.S. dollars.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
Income Before Income Taxes and Minority Interest. Income before income taxes
and minority interest increased 16.7% in 1996. After tax earnings per share
were $3.24 for 1996 compared with $2.80 for 1995. After tax net income before
realized capital gains and losses increased 15.6%, to $54.6 million, in 1996.
Income before income taxes and minority interest for the U.S. ordinary life
segment increased to $80.0 million in 1996 compared to $62.6 million in 1995
due primarily to strong premium growth of 17.5% in 1996. Income before income
taxes and minority interest for the Canadian ordinary life segment increased
23.5% to $13.4 million in 1996, primarily as a result of strong new business
production and gains on investments. The accident and health segment lost
$4.1 million before income taxes and minority interest in 1996 and $0.7
million in 1995. The loss in 1996 was the result of several large claims
incurred and strengthening reserves associated with several closed blocks of
business. The other international segment lost $2.2 million before income
taxes and minority interest in 1996. This represented approximately $2.1
million income from Latin American operations, offset by a loss of $4.3
million from Asia Pacific operations. The loss in the Asia Pacific operations
was attributable to the cost associated with the development of a new
operation, which more than offset the increasing premium levels during 1996.
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Net Premiums. Net premiums increased 18.4%, to $674.9 million in 1996. Net
premiums for the U.S. ordinary life segment rose 17.5% to $486.7 million in
1996. Renewal premiums from the existing block of business, new business
premiums from facultative and automatic treaties, and premium flows from
larger, merger-oriented blocks of business all contributed to the premium
increase. Business premium levels are significantly influenced by large
transactions and reporting practices of ceding companies from period to
period.
Net premiums in the Canadian ordinary life segment increased 28.2% to $63.1
million in 1996. New business premiums increased $6.0 million, while renewal
premiums increased $7.8 million during 1996. The effect of changes in the
foreign exchange rate during 1996 was not material.
Accident and health segment net premiums increased 19.7% to $57.2 million in
1996. The net premiums reported from business in the United Kingdom has more
than offset premium losses incurred from cancellation of existing U.S.
treaties during 1996.
The Company's other international business reported premiums of $67.9 million
in 1996 compared to $58.8 million in 1995. The 1996 premium represented
approximately $46.8 million from Latin America, of which approximately $41.7
million was direct premium generated by business ventures in Argentina and
Chile. The remaining $21.1 million of premiums was reported from the Asia
Pacific operations, predominantly through the Hong Kong contact office.
Net Investment Income. Net investment income increased 51.8% in 1996. The
cost basis of invested assets increased $650.0 million, or 79.3%. The
increase in invested assets was a result of an increase in operating cash
flows, net proceeds of $99.0 million from the 7 1/4% Senior Notes issued by
the Company during 1996, and reinsurance transactions involving stable value
product deposits from ceding companies of $429.3 million and $112.5 million
during 1996 and the second half on 1995, respectively. The average yield
earned was 7.32% in 1996 compared with 7.63% earned in 1995. The decrease in
overall yield was partially a result of assets supporting the stable value
product that are of a shorter duration and carry a lower average yield. The
stable value product asset portfolio generated $24.1 million of investment
income in 1996, which was largely offset by earnings credited and paid to
ceding companies included in claims and other policy benefits.
Realized Capital Gains. Net realized investment gains increased to $0.9
million in 1996. This was primarily the result of repositioning the Company's
Canadian operating portfolio to achieve a better duration match for the
assets and liabilities.
Other Revenue. Other revenue increased $9.4 million in 1996 to $17.4 million.
Other revenue includes items such as profit and risk fees associated with
financial reinsurance as well as earnings in unconsolidated investees,
management fee income, and miscellaneous income associated with late premium
payments. During 1996, certain financial reinsurance treaties resulted in
$14.7 million in financial reinsurance fees which were partially offset by
fees paid to retrocessionaires of $12.8 million, included in other insurance
expenses. Other revenue also included $2.2 million in earnings in
unconsolidated subsidiaries. The Company's strategy involves the assumption
and subsequent retrocession of these financial reinsurance treaties which
resulted in $148.7 million and $137.0 million being included in other
reinsurance assets and liabilities, respectively on the Company's
consolidated balance sheet as of December 31, 1996.
Claims and Other Policy Benefits. Claims and other policy benefits increased
20.8%, to $560.4 million in 1996. Claims and other policy benefits as a
percentage of net premiums increased to 83.0% in 1996 from 81.4% in 1995.
This increase was primarily a result of changes in the mix of business,
increasing levels of other international business and significant blocks of
new business in the U.S. and Canadian ordinary life segments assumed during
1996. Net of the effects of reporting financial
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reinsurance and stable value business, the comparable percentages were 80.0%
and 79.9% in 1996 and 1995, respectively. Also, overall mortality was
generally less favorable in 1996 compared to 1995. The Company expects
mortality to fluctuate somewhat from period to period, but believes it is
fairly constant over longer periods of time. The Company continues to monitor
mortality trends to determine the appropriateness of reserve levels.
U.S. ordinary life segment claims and other policy benefits increased 19.9%
in 1996. Claims and other policy benefits as a percentage of net premiums
increased to 85.2% in 1996 from 83.5% in 1995. This increase was primarily
attributed to interest paid to ceding companies for the stable value product,
which totalled $20.2 million in 1996 and $0.8 million in 1995.
Canadian ordinary life segment claims and other policy benefits increased
34.3% in 1996. Claims and other policy benefits as a percentage of net
premiums increased to 78.1% in 1996 from 74.5% in 1995. The increase was
primarily due to mortality results which were not as favorable as those
experienced in 1995.
Accident and health segment claims and other policy benefits increased 25.6%
in 1996. As a percentage of net premiums, claims and other policy benefits
increased to 73.9% in 1996, from 70.4% in 1995. The increase was primarily
due to overall strengthening of claim liabilities on several closed blocks of
business. The accident and health segment reserves are subject to volatility
due to the nature of risk covered, primarily accident risks, and reporting
lags which are normal for the industry. Reserves are calculated based upon
current information, including industry estimates for certain aviation
accidents.
The Company's other international business comprised the remaining increase
of $6.5 million. The increase was the result of reserve and policyholder
benefit increases on business from Latin American ventures and blocks of
mortality risk reinsurance of $4.0 million. These reserve increases resulted
from new business and the change in product mix in the Latin American
division to more single premium immediate annuity business in 1996. The Asia
Pacific operations reflected an increase of $2.5 million. This increase is
the result of new business written, partially offset by any refinements in
reserve calculations.
Policy Acquisition Costs and Other Insurance Expenses. Policy acquisition
costs and other insurance expenses, consisting primarily of allowances,
increased 39.2%, to $136.5 million in 1996. As a percentage of net premiums,
policy acquisition costs and other insurance expenses increased to 20.2% in
1996 from 17.2% in 1995, resulting from growth in financial reinsurance
transactions, partially offset by a change in business mix from coinsurance
to yearly renewable term (YRT). Overall, policy acquisition costs and other
insurance expenses continue to fluctuate with business volume and changes in
product mix from period to period.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums for the U.S. ordinary life segment increased to 19.8% in 1996, from
17.3% in 1995. The increase as a percent of premium was due primarily to
significant financial reinsurance treaties on which fees of approximately
$12.8 million were paid to retrocessionaires. This amount represents an
offset to the fees reflected as other revenues.
In the Canadian ordinary life segment, policy acquisition costs and other
insurance expenses as a percentage of net premiums decreased to 16.1% in
1996, from 16.4% in 1995. The decrease was a result of several factors,
including the mix of business written during the past several years which
continued to transition to a YRT basis from a coinsurance basis. Business
written on a YRT basis has significantly lower commissions than business
written on a coinsurance basis.
Accident and health segment policy acquisition costs and other insurance
expenses as a percentage of net premiums increased to 32.2% in 1996, from
28.5% in 1995. The increase was a result of a continued transition in the mix
of business during 1996. During 1996, a larger percentage of business
continued to be written on a quota share basis resulting in higher
commissions.
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Other international operations policy acquisition costs and other insurance
expenses as a percentage of net premiums increased to 16.7% in 1996, from
8.1% in 1995. The other international operations consist of three major
components: business from joint ventures and subsidiaries in Argentina and
Chile, blocks of mortality risk reinsurance assumed from Argentina, and
business assumed through the Company's contact office in Hong Kong. These
percentages fluctuate due to the timing of client company reporting and the
continuing refinement of deferred acquisition cost and policy benefit reserve
calculations.
Other Operating Expenses. Other operating expenses increased 26.2% to $39.8
million in 1996. U.S. ordinary life segment operating expenses increased
24.6% in 1996. This increase was attributed to planned increases in operating
expenses associated with the ongoing growth of the Company. Other
international business operating expenses increased $2.9 million to $10.2
million in 1996. Of these expense increases, $1.1 million related to the
Latin American operations and the remaining $1.8 million related to Asia
Pacific operations.
Interest Expense. Interest expense during 1996 related to the issuance of
$100.0 million (principal amount) of 7 1/4% Senior Notes by Reinsurance Group
of America, Incorporated on March 19, 1996, and the financing of a portion of
the Company's Australian reinsurance operations, RGA Australian Holdings PTY,
Limited (Australian Holdings). Interest cost for 1996 was $6.2 million with
$5.7 million related to the Senior Notes.
Provisions for Income Tax. Income tax expense increased 16.7% in 1996 as a
result of higher pre-tax income. The Company's effective tax rate was 36.4%
for 1996 and 1995.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
Income Before Income Taxes and Minority Interest. Income before income taxes
and minority interest increased 15.9% in 1995. After tax earnings per share
were $2.80 for 1995 compared with $2.36 for 1994. After tax net income before
realized capital gains and losses increased 18.5%, to $47.3 million in 1995.
Income before income taxes and minority interest for the U.S. ordinary life
segment remained relatively stable at $62.6 million in 1995 compared to $63.1
million in 1994. The reason for the relatively small decrease from 1994 to
1995 was the exceptionally strong earnings in 1994, which increased 40.1%
over those in 1993. Income before income taxes and minority interest for the
Canadian ordinary life segment increased 60.3%, to $10.9 million in 1995,
primarily as a result of favorable mortality and strong production. The
accident and health segment lost $0.7 million before income taxes and
minority interest in 1995 and $5.4 million in 1994. The loss in 1995 was
primarily a result of poor experience associated with several closed blocks
of business. Income before income taxes and minority interest for the other
international segment was $1.8 million in 1995. This represented
approximately $3.5 million from Latin American operations, offset by a loss
of $1.7 million from Asia Pacific operations. The loss in the Asia Pacific
operations was attributable to start-up costs in establishing RGA within the
region.
Net Premiums. Net premiums increased 26.2%, to $570.0 million in 1995. Net
premiums for the U.S. ordinary life segment rose 21.9% in 1995. Renewal
premiums from the existing block of business, new business premiums from
facultative and automatic treaties, and premium flows from larger,
merger-oriented blocks of business all contributed to the premium increase.
Business premium levels are significantly influenced by large transactions
and reporting practices of ceding companies from period to period.
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Net premiums for the Canadian ordinary life segment increased 20.2% in 1995.
New business premiums increased $1.6 million, while renewal premiums
increased $6.6 million during 1995. The effect of changes in the foreign
exchange rate during 1995 was approximately $0.1 million.
Net premiums for the accident and health segment decreased 1.4% in 1995. The
premium levels have remained stable from year to year as the business
production offset premium losses incurred from cancellation of certain
existing treaties that occurred during 1994.
The Company's other international business reported premiums of $58.8 million
in 1995 compared to $22.6 million in 1994. The 1995 premium represented
approximately $46.1 million from Latin America, of which approximately $33.8
million was generated by joint ventures in Argentina and Chile. The remaining
$12.7 million of premiums was reported from the Asia Pacific operations.
Net Investment Income. Net investment income increased 26.4% in 1995. This
increase was due primarily to a $298.3 million increase in invested assets,
excluding market value adjustments. This increase in invested assets was a
result of operating cash flows as well as reinsurance transactions during
1995 involving cash deposits of $112.5 million from ceding companies, which
combined to provide a significant increase in investment income.
Realized Capital Gains. Net realized capital gains decreased $0.8 million
compared to 1994. Realized capital gains and losses offset each other during
1995 resulting primarily from continued efforts to enhance returns and
maintain high credit quality in the U.S. portfolio and repositioning the
Canadian portfolio to retain appropriate duration matching on assets and
liabilities.
Other Revenue. Other revenue increased $6.1 million to $8.0 million in 1995.
Other revenue includes items such as profit and risk fees associated with
financial reinsurance as well as management fee income and miscellaneous
income associated with late premium payments. During 1995, certain financial
reinsurance treaties resulted in an additional $5.4 million in financial
reinsurance fees and an additional $1.0 million in management fee income,
which was partially offset by fees paid to retrocessionaires of $5.0 million
included in other insurance expenses. The Company's strategy involved the
assumption and subsequent retrocession of these financial reinsurance
treaties, which resulted in $93.0 million and $85.5 million being included in
other reinsurance balances assets and liabilities, respectively on the
Company's consolidated balance sheet as of December 31, 1995. The increase in
other revenue from financial reinsurance transactions was partially offset by
a reduction in management fee income on accident and health business.
Claims and Other Policy Benefits. Claims and other policy benefits increased
29.5%, to $463.9 million in 1995. Claims and other policy benefits as a
percentage of net premiums increased to 81.4% in 1995, from 79.3% in 1994.
This increase was primarily a result of changes in the mix of business,
increasing levels of other international business and significant blocks of
new business in the U.S. and Canadian ordinary life segments assumed during
1995.
U.S. ordinary life segment claims and other policy benefits increased 28.3%
in 1995. Claims and other policy benefits as a percentage of net premiums
increased to 83.5% in 1995, from 79.4% in 1994. This increase was primarily
due to reserve levels on several large blocks of business and changes in the
product mix associated with blocks of new business assumed during 1995.
Canadian ordinary life segment claims and other policy benefits increased
24.4% in 1995. Claims and other policy benefits as a percentage of net
premiums increased to 74.5% in 1995, from 72.0% in 1994. The increase was
primarily due to increased business volume in 1995 as mortality remained
favorable, but not to the degree exhibited during 1994.
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Accident and health segment claims and other policy benefits decreased 15.8%
in 1995. As a percentage of net premiums, claims and other policy benefits
decreased to 70.4% in 1995 from 82.2% in 1994. The decrease was primarily due
to an increase in reserves of approximately $7.4 million during 1994 related
to possible claims on catastrophe coverage business based on initial loss
estimates concerning recent aviation accidents. The accident and health
segment reserves are subject to volatility due to the nature of risk covered,
primarily accident risks. Reserves are calculated based upon current
information, including industry estimates for certain aviation accidents.
The Company's other international business comprised the remaining increase
of $28.6 million. This increase was the result of reserve and policyholder
benefit increases on business from Latin American joint ventures and blocks
of mortality risk reinsurance of $22.5 million, and $6.1 million for business
from the Asia Pacific operations. These reserve increases resulted from new
business in 1994 and continued development in 1995.
Policy Acquisition Costs and Other Insurance Expenses. Policy acquisition
costs and other insurance expenses, consisting primarily of allowances,
increased 24.7%, to $98.1 million in 1995. As a percentage of net premiums,
policy acquisition costs and other insurance expenses decreased to 17.2% in
1995 from 17.4% in 1994 resulting from several factors. These factors
included the deferral of excess allowances on several large blocks of first
year business, effects of a change in 1993 to the policy acquisition cost
amortization period for U.S. ordinary life business, an overall shift of
business from coinsurance to YRT, and lower expense rates on new business.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums for the U.S. ordinary life segment increased to 17.3% in 1995, from
16.3% in 1994. The increase as a percent of premium was due primarily to
significant financial reinsurance treaties on which fees of approximately
$5.0 million were paid to retrocessionaires. This amount represents an offset
to the fees reflected as other revenues.
In the Canadian ordinary life segment, policy acquisition costs and other
insurance expenses as a percentage of net premiums decreased to 16.4% in
1995, from 23.0% in 1994. The decrease was a result of several factors.
Approximately 3.2% of the decrease in the ratio related to a refinement of
the calculation used to compute the deferred acquisition cost balance which
resulted in additional amortization in 1994. In addition, the mix of business
written during the past several years continued to transition to a YRT basis
from a coinsurance basis. Business written on a YRT basis has significantly
lower commissions than business written on a coinsurance basis. In 1994, more
than 65% of the Canadian segment's premiums were on a coinsurance basis
versus approximately 62% in 1995.
Accident and health segment policy acquisition costs and other insurance
expenses as a percentage of net premiums increased to 28.5% in 1995, from
26.2% in 1994. The increase was a result of a continued transition in the mix
of business during 1995. During 1995, a larger percentage of business was
being written on a quota share basis, resulting in higher commissions.
The other international operations consist of two major components. The Latin
American business in the joint ventures and the blocks of mortality risk
reinsurance assumed carry lower net acquisition costs as a percentage of
premium, based on the nature of the business, compared with the Company's
traditional North American business. The business assumed from the Asia
Pacific operations carried net acquisition costs as a percentage of premium
of 18.8%, which was customary for the business in the region.
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Other Operating Expenses. Other operating expenses increased 28.8% to $31.6
million in 1995. U.S. ordinary life segment operating expenses increased
22.5% in 1995. This increase was attributed to planned increases in operating
expenses associated with the ongoing growth of the Company. Other
international business operating expenses increased $4.0 million in 1995. Of
these expense increases, $1.8 million related to the Latin American
operations and the remaining $2.2 million related to Asia Pacific operations.
These costs represented operating costs in these countries and additional
home office staffing. These operations were in business for only a portion of
1994 versus the entire year of 1995.
Provision for Income Taxes. Income tax expense increased 14.9% in 1995 as a
result of higher pre-tax income. The Company's effective tax rates for 1995
and 1994 were 36.4% and 36.7%, respectively.
LIQUIDITY AND CAPITAL RESOURCES RGA is a holding company which has as its
principal assets interests in RGA Reinsurance, RGA Life Reinsurance Company
of Canada (RGA Canada), formerly General American Life Reinsurance Company of
Canada, BHIF America Seguros de Vida, S.A. (BHIF America), RGA Reinsurance
Company Chile S.A. (RGA Chile), Manantial Seguros de Vida, S.A. (Manantial),
Australian Holdings, and RGA Reinsurance Company (Barbados) Ltd. (RGA
Barbados). RGA's liquidity is supported by the proceeds of the stock offering
in 1993 and the $100.0 million offering of Senior Notes in 1996, of which
approximately $97.5 million was maintained in investment-grade securities at
the holding company level at December 31, 1996.
RGA began paying a dividend of $0.06 per share each quarter, starting in
August 1993. In August 1995, the dividend was raised to $0.07 per share and
raised to $0.08 per share in August 1996. It is expected that payments at
this level will continue. All future payments of dividends are at the
discretion of the Company's Board of Directors and will depend on the
Company's earnings, capital requirements, insurance regulatory conditions,
operating conditions, and such other factors as the Board of Directors may
deem relevant. The amount of dividends that the Company can pay will depend
in part on the operations of its reinsurance subsidiaries. The transfer of
funds from the subsidiaries to RGA is subject to applicable insurance laws
and regulations.
As RGA continues its expansion efforts, management continually analyzes
capital adequacy issues. In 1996, RGA issued $100.0 million of 7 1/4% Senior
Notes. Interest is payable semiannually on April 1 and October 1 with the
principal amount due on April 1, 2006. In addition, Australian Holdings
established a line of credit with an outstanding balance at December 31,
1996, of $7.6 million. The ability of RGA and Australian Holdings to make
principal and interest payments is ultimately dependent on the earnings and
surplus of RGA's subsidiaries, as well as the investment earnings on the
undeployed debt proceeds.
In July 1996, a program of repurchasing shares of stock in RGA was approved
by RGA's Board of Directors. The program is intended to enable RGA to satisfy
obligations under its stock option program and to acquire larger blocks of
stock. Purchases will be made in the open market from time to time, at the
then prevailing market price, or through negotiated transactions. As of
December 31, 1996, no shares had been repurchased through this program.
The sources of funds of RGA's operating subsidiaries consist of premiums
received from ceding insurers, investment income, and proceeds from sales and
redemption of investments. Premiums are generally received in advance of
related claims payments. Funds are applied primarily to policy claims and
benefits, operating expenses, income taxes, and investment purchases.
As of December 31, 1996, RGA Reinsurance had statutory capital and surplus of
$205.9 million. The maximum amount available for payment of dividends in 1997
by RGA Reinsurance under Missouri law, without the prior approval of the
Missouri Director of Insurance, is $26.0 million. RGA Canada's statutory
capital was $36.4 million at December 31, 1996. The maximum
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amount available for dividends by RGA Canada under the Canadian Minimum
Continuing Capital and Surplus Requirements (MCCSR) is $7.2 million. Dividend
payments from other subsidiaries and joint ventures are subject to
regulations in the country of domicile.
The Company's net cash flows from consolidated operating activities for the
years ended December 31, 1996, 1995, and 1994, were $256.7 million, $171.0
million, and $129.4 million, respectively. Because the business provides
positive cash flow, the Company's liabilities generally are not subject to
disintermediation risk, and because the reinsured treaties offer no
withdrawal options and require no return of premium if canceled or allowed to
lapse, the Company historically has had more than sufficient funds to pay
claims and expenses. The Company expects any future increase in the need for
liquidity due to relatively large policy loans or unanticipated material
claim levels would be met first by operating cash flows and then by selling
fixed-income securities or short-term investments.
Effective December 31, 1993, the National Association of Insurance
Commissioners ("NAIC") adopted risk-based capital ("RBC") statutory
requirements for U.S.-based life insurance companies. These requirements
measure statutory capital and surplus needs based on the risks associated
with a company's mix of products and investment portfolio. At December 31,
1996, RGA Reinsurance's statutory capital and surplus significantly exceeded
all RBC thresholds and RGA Canada's capital levels significantly exceeded any
MCCSR requirements. All of the Company's insurance operating subsidiaries
exceed the minimum capital requirements in their respective jurisdiction.
INVESTMENTS All investments made by RGA and its subsidiaries conform to
the qualitative and quantitative limits prescribed by the applicable
jurisdiction's insurance laws and regulations. In addition, the investment
portfolios of the international subsidiaries are periodically reviewed by
their respective Boards of Directors. All investment portfolios are also
reviewed by the RGA Board of Directors. The Company's investment strategy is
to maintain a predominantly investment-grade, fixed-income portfolio, to
provide adequate liquidity for expected reinsurance obligations, and to
maximize total return through prudent asset management. The Company's
asset/liability duration matching differs between U.S. and Canadian operating
segments. The target duration for the U.S. investments is currently a range
between four and seven years, with individual investments all along the
maturity spectrum. 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. For the year ended December 31, 1996, the Company's earned
yield on fixed-income securities was 7.36%.
The Company's fixed-income securities are invested primarily in U.S.
Treasuries, Canadian government securities, public and private corporate
bonds, and mortgage and asset-backed securities. As of December 31, 1996,
more than 98% 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.
Private placement bonds are issued in negotiated transactions between lenders
and borrowers and are not registered with the Securities and Exchange
Commission. While less liquid than public securities, private placements
often contain investment characteristics favorable to investors, including
more stringent financial covenants, additional call protection, and higher
yields than similar public securities.
21
10
The largest industry segment in which fixed maturities were invested was
mortgage-backed securities, which represented approximately 24.3% of total
invested assets as of December 31, 1996. Approximately 67% of these
securities are invested in the investment portfolio supporting the stable
value reinsurance product. Investors are compensated primarily for
reinvestment risk rather than credit quality risk. To mitigate prepayment
volatility, the Company primarily invests in senior, intermediate,
average-life tranches of agency and whole loan collateralized mortgage
obligations. All of the Company's mortgage-backed securities are
investment-grade, with an average Standard and Poor's rating of AA.
As of December 31, 1996, approximately 18.8% of the Company's invested assets
consisted of policy loans. These 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
policy loan interest rates are determined by the provisions of the treaties
in force and the underlying policies. 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.
As of December 31, 1996, mortgage loans represented approximately 4.3% of the
Company's invested assets, which is comprised of approximately $58.7 million
in U.S. mortgages and $39.6 million in Chilean mortgage-related instruments,
which include real estate leasing, mortgage drafts, and mortgage loans. The
Company invests primarily in mortgages on commercial offices and retail
locations. The Company's domestic mortgage loans generally range in size from
$0.8 million to $6.3 million, with the average mortgage loan investment as of
December 31, 1996, being approximately $2.8 million. The Company's Chilean
mortgage securities range in size from approximately $1,500 to less than $1.0
million, with the average mortgage loan investment as of December 31, 1996,
being approximately $74,000. The mortgage loan portfolio is diversified by
geographic region and property type as discussed further in Note 4 to the
consolidated financial statements.
The invested assets of RGA, RGA Reinsurance, RGA Barbados, Australian
Holdings, and RGA Canada are managed by Conning Asset Management Company
(Conning), a wholly owned subsidiary of General American. As of December 31,
1996, the investments of BHIF America, RGA Reinsurance Company of Chile,
S.A., and Manantial were managed by the staffs of those entities.
EFFECTS OF INFLATION The primary, direct effect on the Company of
inflation is the increase in operating expenses. A large portion of the
Company's operating expenses consists of salaries, which are subject to wage
increases at least partly affected by the rate of inflation.
The rate of inflation also has an indirect effect on the Company. To the
extent that the government's policies to control the level of inflation
results in changes in interest rates, the Company's investment income is
affected.
M A N A G E M E N T ' S 22 D I S C U S S I O N a n d A N A L Y S I S
11
CONSOLIDATED BALANCE SHEETS
Year Ended December 31 1996 1995
(Dollars in thousands)
Assets
Fixed maturity securities
Available for sale-at fair value (amortized cost of $1,469,649
and $819,661 at December 31, 1996 and 1995, respectively) $1,517,264 $ 872,804
Mortgage loans on real estate, net 98,262 14,653
Policy loans 426,366 346,942
Funds withheld at interest 129,949 101,841
Short-term investments 93,548 66,161
Other invested assets 6,659 3,112
- -------------------------------------------------------------------------------------------------------------
Total investments 2,272,048 1,405,513
Cash and cash equivalents 13,145 18,258
Accrued investment income 23,308 17,657
Premiums receivable 76,438 84,731
Funds withheld 30,697 28,644
Reinsurance ceded receivables 59,618 64,076
Deferred policy acquisition costs 233,565 186,813
Other reinsurance balances 157,065 158,967
Other assets 27,770 25,275
- -------------------------------------------------------------------------------------------------------------
Total assets $2,893,654 $1,989,934
=========================================================================================================
Liabilities and Stockholders' Equity
Future policy benefits $ 755,793 $ 601,674
Interest sensitive contract liabilities 1,106,491 598,935
Other policy claims and benefits 206,284 207,673
Other reinsurance balances 149,289 105,178
Deferred income taxes 73,275 61,169
Other liabilities 63,689 30,495
Long-term debt 106,493 -
- -------------------------------------------------------------------------------------------------------------
Total liabilities 2,461,314 1,605,124
Minority interest 6,782 7,881
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; 50,000,000 shares
authorized, 17,366,250 shares issued) 174 174
Additional paid in capital 264,399 263,169
Currency translation adjustments (5,536) (3,736)
Unrealized appreciation of securities, net of taxes 28,365 33,010
Retained earnings 147,824 97,802
-----------------------------------------------------------------------------------------------------------
Total stockholders' equity before treasury stock 435,226 390,419
Less treasury shares held of 389,354 and 544,354 at cost at
December 31, 1996 and 1995, respectively (9,668) (13,490)
----------------------------------------------------------------------------------------------------------
Total stockholders' equity 425,558 376,929
----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,893,654 $1,989,934
==========================================================================================================
See accompanying notes to consolidated financial statements.
C O N S O L I D A T E D 23 B A L A N C E S H E E T S
12
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 1996 1995 1994
(Dollars in thousands, except per share data)
Revenues
Net premiums $674,885 $569,990 $451,740
Investment income, net of related expenses 136,828 90,117 71,303
Realized investment gains, net 930 31 825
Other revenue 17,386 7,994 1,927
-----------------------------------------------------------------------------------------------------------
Total revenues 830,029 668,132 525,795
Benefits and Expenses
Claims and other policy benefits 560,445 463,867 358,255
Policy acquisition costs and other insurance expenses 136,509 98,072 78,643
Other operating expenses 39,845 31,574 24,523
Interest expense 6,169 - -
-----------------------------------------------------------------------------------------------------------
Total benefits and expenses 742,968 593,513 461,421
=========================================================================================================
Income before income taxes and minority interest 87,061 74,619 64,374
Provision for income taxes
Current 17,992 12,780 19,617
Deferred 13,695 14,368 4,013
-----------------------------------------------------------------------------------------------------------
Total provision for income taxes 31,687 27,148 23,630
=========================================================================================================
Income before minority interest 55,374 47,471 40,744
Minority interest in earnings of consolidated subsidiaries (302) (180) (319)
- -------------------------------------------------------------------------------------------------------------
Net income $ 55,072 $ 47,291 $ 40,425
=========================================================================================================
Earnings per common and common equivalent share $ 3.24 $ 2.80 $ 2.36
=============================================================================================================
Weighted average number of common and common equivalent
shares outstanding (in thousands) 17,004 16,883 17,152
===========================================================================================================
See accompanying notes to consolidated financial statements.
C O N S O L I D A T E D 24 S T A T E M E N T S o f I N C O M E
13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized
Additional Currency Appreciation
Preferred Common Paid In Translation (Depreciation) Retained Treasury
(Dollars in thousands) Stock Stock Capital Adjustments of Securities Earnings Stock Total
===========================================================================================================================
Balance December 31, 1993 $ - $174 $263,170 $(2,916) $ 375 $ 18,586 $ - $279,389
Implementation of
SFAS No. 115 - - - - 10,922 - - 10,922
Currency translation
adjustments - - - (2,875) - - - (2,875)
Unrealized depreciation
of securities, net of tax - - - - (35,684) - - (35,684)
Net income - - - - - 40,425 - 40,425
Dividends to stockholders - - - - - (4,124) - (4,124)
Purchase of treasury stock - - - - - - (11,265) (11,265)
-------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 - 174 263,170 (5,791) (24,387) 54,887 (11,265) 276,788
Currency translation
adjustments - - - 2,055 - - - 2,055
Unrealized appreciation
of securities, net of tax - - - - 57,397 - - 57,397
Net income - - - - - 47,291 - 47,291
Dividends to stockholders - - - - - (4,376) - (4,376)
Purchase of treasury stock - - - - - - (2,422) (2,422)
Reissuance of treasury stock - - (1) - - - 197 196
-------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 - 174 263,169 (3,736) 33,010 97,802 (13,490) 376,929
Currency translation
adjustments - - - (1,800) - - - (1,800)
Unrealized depreciation
of securities, net of tax - - - - (4,645) - - (4,645)
Net income - - - - - 55,072 - 55,072
Dividends to stockholders - - - - - (5,050) - (5,050)
Reissuance of treasury
stock - - 1,230 - - - 3,822 5,052
-------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 $ - $174 $264,399 $(5,536) $ 28,365 $147,824 $ (9,668) $425,558
===========================================================================================================================
See accompanying notes to consolidated financial statements.
C O N S O L I D A T E D S T A T E M E N T S 25 o f
S T O C K H O L D E R S ' E Q U I T Y
14
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1996 1995 1994
(Dollars in thousands)
Operating Activities
Net income $ 55,072 $ 47,291 $ 40,425
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in:
Accrued investment income (5,660) (1,839) (1,888)
Premiums receivable 8,214 (14,008) (37,393)
Deferred policy acquisition costs (47,122) (28,575) (17,683)
Funds withheld (2,053) (6,863) 2,931
Reinsurance ceded receivables 4,422 14,416 5,339
Future policy benefits, other policy claims and benefits,
and other reinsurance balances 258,562 169,732 140,962
Deferred income taxes 14,208 14,367 4,126
Other assets and other liabilities (20,978) (17,578) (4,990)
Amortization of goodwill and value of business acquired 1,233 1,059 632
Amortization of net investment discounts (9,071) (8,384) (2,351)
Realized investment gains, net (930) (31) (825)
Other, net 781 1,428 95
-------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 256,678 171,015 129,380
Investing Activities
Sales of fixed maturity securities:
Available for sale 135,110 154,607 71,063
Maturities of fixed maturity securities:
Held to maturity - 6,365 9,002
Available for sale 189,969 14,443 23,029
Purchases of fixed maturity securities:
Held to maturity - (3,068) (7,193)
Available for sale (917,743) (362,390) (169,832)
Cash invested in:
Mortgage loans (89,237) (11,397) (3,541)
Policy loans (79,424) (37,245) (35,199)
Funds withheld at interest (28,108) (21,383) (18,142)
Principal payments on:
Mortgage loans 4,739 285 -
Policy loans - 4,794 1,575
Change in short-term and other invested assets (29,791) (31,576) (6,927)
Investment in joint venture and purchase of subsidiary
stock (3,207) (3,366) (535)
-------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (817,692) (289,931) (136,700)
Financing Activities
Dividends to stockholders (5,049) (4,376) (4,124)
Purchase of treasury stock - (2,422) (11,265)
Reissuance of treasury stock 4,031 196 -
Minority interest capital contribution - - 3,000
Minority interest in earnings 302 180 319
Excess deposits on universal life and other investment type
policies and contracts 450,079 131,833 23,695
Proceeds from long-term debt issuance 106,403 - -
-------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 555,766 125,411 11,625
Effect of exchange rate changes 135 267 (96)
- ---------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (5,113) 6,762 4,209
Cash and cash equivalents, beginning of year 18,258 11,496 7,287
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 13,145 $ 18,258 $ 11,496
===============================================================================================================
See accompanying notes to consolidated financial statements.
C O N S O L I D A T E D 26 S T A T E M E N T S O F C A S H F L O W S
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 ORGANIZATION Reinsurance Group of America, Incorporated (RGA)
is an insurance holding company formed December 31, 1992. The consolidated
financial statements include the assets, liabilities, and results of
operations of RGA; RGA Reinsurance Company (RGA Reinsurance), formerly Saint
Louis Reinsurance Company; RGA Australian Holdings PTY, Limited (Australian
Holdings); RGA Reinsurance Company (Barbados) Ltd. (RGA Barbados); RGA
Reinsurance Company (Bermuda) Ltd. (RGA Bermuda); G.A. Canadian Holdings,
Ltd. (Canadian Holdings), a Canadian insurance holding company; RGA
Sudamerica, S.A., a Chilean holding company; and Manantial Seguros de Vida,
S.A. (Manantial), an Argentine life insurance company; along with the
subsidiaries of RGA Reinsurance, Australian Holdings, Canadian Holdings, and
RGA Sudamerica, S.A., subject to an ownership position of fifty percent or
more (collectively, the Company).
The Company is primarily engaged in ordinary life reinsurance, accident and
health reinsurance, and international life and disability on a direct and
reinsurance basis. Reinsurance is an arrangement under which an insurance
company, the "reinsurer," agrees to indemnify another insurance company, the
ceding company, for all or a portion of the insurance risks underwritten by
the ceding company. Reinsurance is designed to (i) reduce the net liability
on individual risks, thereby enabling the ceding company to increase the
volume of business it can underwrite, as well as increase the maximum risk it
can underwrite on a single life or risk; (ii) stabilize operating results by
leveling fluctuations in the ceding company's loss experience; (iii) assist
the ceding company to meet applicable regulatory requirements; and (iv)
enhance the ceding company's financial strength and surplus position.
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Basis of Presentation. The consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles prescribed for stock life insurance companies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. Accounts that
the Company deems to be sensitive to changes in estimates include deferred
policy acquisition costs, premiums receivable, future policy benefits, and
other policy claims and benefits. In all instances, actual results could
differ from estimates.
The accompanying financial statements consolidate the accounts of RGA and its
subsidiaries, both direct and indirect, subject to an ownership position of
fifty percent or more. All significant intercompany balances and transactions
have been eliminated.
Investments. Fixed maturities available for sale are reported at fair value
and are so classified based upon the possibility that such securities could
be sold prior to maturity if that action enables the Company to execute its
investment philosophy and appropriately match investment results to operating
and liquidity needs. Effective December 31, 1995, the Company reclassified
the entire portfolio of fixed maturities held to maturity as available for
sale in accordance with the Financial Accounting Standards Board's "Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," which was issued during November 1995. This
reclassification enabled the Company to gain an added measure of flexibility
in managing credit quality in coordination with appropriate asset/liability
matching.
Although no impairments in value have occurred which would require adjustment
to the carrying value of securities, any such impairment identified in the
future would result in a reduction of the carrying value and reflection of a
corresponding realized capital loss in the consolidated statements of income.
The Company's policy is to recognize such an impairment when the projected
cash flows of these securities have been reduced on other than a temporary
basis so that the realizable value is reduced to an amount less than the
carrying value.
Mortgage loans are carried at unpaid principal balances, net of any
unamortized premium or discount and valuation allowances. Valuation
allowances on mortgage loans are being established based upon losses expected
by management to be realized in connection with future dispositions or
settlement of mortgage loans, including foreclosures.The valuation allowances
are being established after management considers, among other things, the
value of underlying collateral and payment capabilities of debtors.
N O T E S to C O N S O L I D A T E D 27
F I N A N C I A L S T A T E M E N T S
16
Policy loans are reported at the unpaid principal balance.
Other invested assets, which consists primarily of Chilean common stocks, are
carried at fair value.
The Company utilizes derivative financial instruments to improve the
management of the investment related risks. The Company uses both
exchange-traded and customized, over-the-counter derivative financial
instruments. RGA Reinsurance has established minimum credit quality standards
for counterparties and seeks to obtain collateral or other credit support. The
Company limits its total financial exposure to counterparties. Management
reports to the Board of Directors on a quarterly basis on its use of
derivative financial instruments, including the aggregate financial exposure,
individual counterparty exposure and the purpose of each transaction.
Investment income is recognized as it accrues or is legally due. Realized
gains and losses on sales of investments are included in net income, as are
write-downs of securities where declines in value are deemed to be other than
temporary in nature. The cost of investment securities sold is determined
based upon the specific identification method. Unrealized gains and losses on
marketable equity securities and fixed maturity securities available for
sale, less applicable deferred income taxes, are reflected as a direct charge
or credit to stockholders' equity.
Additional Information Regarding Statements of Cash Flows. Cash and cash
equivalents include cash on deposit and highly liquid debt instruments
purchased with an original maturity of three months or less.
Funds Withheld. For reinsurance transactions executed prior to December 31,
1994, assets and liabilities related to treaties written on a modified
coinsurance basis with funds withheld are reported gross. Assets equal to the
statutory reserves are held and legally owned by the ceding company and are
reflected as funds withheld at interest on the balance sheet. Interest
accrues to these assets at a stated rate, which adjusts annually, based on
the underlying assets retained by the ceding company. For reinsurance
transactions executed subsequent to December 31, 1994, assets and liabilities
from reinsurance agreements written on a modified coinsurance basis with
funds withheld have been netted and included in other reinsurance balances on
the balance sheet, since a right of offset exists.
Deferred Policy Acquisition Costs. Costs of acquiring new business, which
vary with and are primarily related to the production of new business, have
been deferred to the extent that such costs are deemed recoverable from
future premiums. Such costs include commissions and allowances as well as
certain costs of policy issuance and underwriting. Periodically, the Company
performs tests to determine that the cost of business acquired remains
recoverable from future premiums.
Deferred costs related to traditional life insurance are amortized over the
premium paying period of the related policies in proportion to the ratio of
annual premium revenues to total anticipated premium revenues. Such
anticipated premium revenues are estimated using the same assumptions used
for computing liabilities for future policy benefits.
Deferred costs related to interest-sensitive life and investment-type
policies are amortized over the lives of the policies, in relation to the
present value of estimated gross profits from mortality, investment income,
and expense margins.
Other Reinsurance Balances. The Company assumes financial reinsurance
contracts which represent low mortality risk reinsurance treaties. These
contracts are accounted for as deposits and reported as other reinsurance
assets/liabilities. The amount of revenue reported on these contracts
represents fees and the cost of insurance under the terms of the reinsurance
agreement.
Goodwill and Value of Business Acquired. Goodwill representing the excess of
purchase price over the fair value of net assets acquired is amortized on a
straight-line basis over ten years. The value of business acquired is
amortized in proportion to the ratio of annual premium
28
17
revenues to total anticipated premium revenues. Anticipated premium revenues
have been estimated using assumptions consistent with those used in
estimating reserves for future policy benefits.
Future Policy Benefits and Interest-Sensitive Contract Liabilities.
Liabilities for future benefits on life policies are established in an amount
adequate to meet the estimated future obligations on policies in force.
Liabilities for future policy benefits under long-term life insurance
policies have been computed based upon expected investment yields, mortality
and withdrawal rates, and other assumptions. These assumptions include a
margin for adverse deviation and vary with the characteristics of the plan of
insurance, year of issue, age of insured, and other appropriate factors.
Interest rates range from 6.5% to 11.0%. The mortality and withdrawal
assumptions are based on the Company's experience as well as industry experience
and standards. Liabilities for future benefits on interest-sensitive life and
investment-type contract liabilities are carried at the accumulated contract
holder values without reduction for potential surrender or withdrawal charges.
Other Policy Claims and Benefits. Claims payable for incurred but not
reported losses are determined using case basis estimates and lag studies of
past experience. These estimates are continually reviewed and required
adjustments to such estimates are reflected in current operations. The
Company has no material policy contract liability balances that would require
fair value disclosure under Statement of Financial Accounting Standards No.
107. Policy and contract reserves are included in future policy benefits on
the consolidated balance sheet.
Investment Contracts. The Company began reinsuring guaranteed interest
contracts (stable value products) on a coinsurance basis in 1995. The stable
value products investment portfolio is segregated within the general fund of
RGA Reinsurance. The portfolio is primarily invested in fixed maturity
securities classified as available for sale and has an effective duration of
one year or less. The carrying value of the stable value products investments
and related liabilities approximates fair value.
Income Taxes. RGA and its U.S. subsidiaries file separate federal income
returns. RGA Barbados also files a U.S. tax return. The Company's Canadian,
Argentine, Australian, and Chilean subsidiaries are taxed under applicable
local statutes.
For all years presented, the Company uses the asset and liability method to
record deferred income taxes. Accordingly, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, using enacted tax rates.
Foreign Currency Translation. The functional currency is the Argentine dollar
for the Company's Argentine operations, the Australian dollar for the
Company's Australian operations, the Canadian dollar for the Company's
Canadian operations, and the Chilean peso for the Company's Chilean
operations. The translation of the foreign currency into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using a
weighted average exchange rate during each year. Gains or losses resulting
from such translation are included in stockholders' equity.
Retrocession Arrangements. The Company reports retrocession activity on a
gross basis. Amounts paid or deemed to have been paid for reinsurance are
reflected in reinsurance receivables. The cost of reinsurance related to
long-duration contracts is recognized over the terms of the reinsured
policies on a basis consistent with the reporting of those policies.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance enterprises or reinsurers under excess
coverage and coinsurance contracts. The Company retains a maximum of
$2,500,000 of coverage per individual life.
N O T E S to C O N S O L I D A T E D 29
F I N A N C I A L S T A T E M E N T S
18
RGA Reinsurance has a number of retrocession arrangements whereby certain
business in force is retroceded on an automatic or facultative basis. All of
the U.S. retrocessionaires under such arrangements were rated A or better by
the A.M. Best Company as of December 31, 1995. In some instances, security in
the form of letters of credit or trust assets have been given by
retrocessionaires as additional security in favor of RGA Reinsurance.
RGA Life Reinsurance Company of Canada (RGA Canada) retrocedes amounts in
excess of its retention to either RGA Reinsurance through General American or
a retrocession pool of ten Canadian, U.S., and European retrocessionaires,
including General American. The retrocession pool was terminated as of
December 31, 1995, and business is currently ceded to RGA Reinsurance through
General American and retrocessions are arranged through RGA Reinsurance's
retrocession pool.
RGA Reinsurance and RGA Canada have never experienced a default in connection
with retrocession arrangements, nor have they experienced any difficulty in
collecting claims recoverable from retrocessionaires; however, no assurance
can be given as to the future performance of such retrocessionaires or as to
recoverability of any such claims.
Recognition of Revenues and Related Expenses. Revenues and expenses are
reported gross, except that initial reserves are netted against premiums when
an in force block of business is reinsured. Ordinary life and health premiums
are recognized as revenue over the premium paying periods of the policies.
Benefits and expenses are associated with earned premiums so that profits are
recognized over the life of the related contract. This association is
accomplished through the provision for future policy benefits and the
amortization of deferred policy acquisition costs.
Revenues for interest-sensitive and investment-type products consist of
policy charges for the cost of insurance, policy administration, and
surrenders that have been assessed against policy account balances during the
period. Interest-sensitive contract liabilities for these products represent
policy account balances before applicable surrender charges. Deferred policy
acquisition costs are recognized as expense over the term of the policies.
Policy benefits and claims that are charged to expense include claims
incurred in the period in excess of related policy account balances and
interest credited to policy account balances. The weighted average interest
crediting rates for interest-sensitive products were 6.7%, 6.7%, and 6.8%
during 1996, 1995, and 1994, respectively. Interest crediting rates for
investment-type contracts ranged from 5.7% to 6.2% and 6.2% to 6.5% during
1996 and 1995, respectively.
Net Earnings Per Share. Net earnings per share were computed by dividing net
earnings by the weighted average number of common and common equivalent
shares outstanding during the year. Employee stock options are reflected as
common stock equivalents using the treasury stock method and have been
considered in net earnings per share calculations.
Reclassification. The Company has reclassified the presentation of certain
prior period information to conform with the 1996 presentation.
Note 3 SUBSIDIARY TRANSACTIONS In 1994, 2.2% of the 12.5% minority
interest of RGA Canada Management Company, Ltd. (Management Company) was
acquired by Canadian Holdings for $537,000. In 1995, the remaining 10.3% of
the capital stock was acquired by Canadian Holdings for $3,365,750.
In October 1993, RGA, through RGA Sudamerica, S.A., entered into a joint
venture, BHIF America Seguros de Vida, S.A. (BHIF America), with local
investors in Santiago, Chile. During 1994 RGA and the local investors funded
the venture, which sells primarily single premium immediate annuities, with
approximately $4,000,000 and $3,000,000 of initial capital contributions,
respectively. For contributions made, each
30
19
party received a 50% ownership interest in the venture. The excess of cost
over fair value of net assets acquired, totaling $500,000, has been treated
as goodwill and is being amortized over ten years. In 1996 and 1995, RGA
contributed $1,275,000 and $565,000 in additional capital to BHIF America.
In May 1994, RGA formed Manantial, a joint venture, with several local
investors in Buenos Aires, Argentina. During 1994, RGA and the local
investors funded the venture, which is a direct life insurance company, with
approximately $5,000,000 and $275,000 of initial capital contributions,
respectively. For contributions made, each party received a 50% ownership
interest in the venture. In June 1996, RGA purchased the remaining shares of
Manantial for $4,500,000. The excess of cost over fair value of net assets
acquired, totaling $4,246,000, has been treated as goodwill and is being
amortized over ten years.
In January 1996, RGA formed Australian Holdings, a wholly owned holding
company and RGA Reinsurance Company of Australia Limited (RGA Australia), a
wholly owned reinsurance company of Australian Holdings licensed to assume
life reinsurance in Australia. During 1996, RGA funded Australian Holdings
with approximately $14,800,000, of which approximately one half of the amount
represents debt as discussed in Note 15.
In July 1996, RGA, through RGA Sudamerica, S.A., formed RGA Reinsurance
Company Chile S.A., a wholly owned reinsurance company licensed to assume
life reinsurance business in Chile. During 1996, RGA funded the subsidiary
with approximately $6,300,000 and reinsured single premium immediate annuity
business written by BHIF America.
The excess of purchase price over the fair value of net assets acquired and
goodwill totaling approximately $6,175,000 and $5,527,000 at December 31,
1996 and 1995, respectively, are included in other assets on the consolidated
balance sheets.
Note 4 INVESTMENTS Major categories of net investment income consist of
the following (in thousands):
Years Ended December 31 1996 1995 1994
Fixed maturity securities $ 92,721 $53,910 $42,395
Mortgage loans 2,510 450 -
Policy loans 29,116 26,020 22,550
Short-term investments 3,523 2,829 1,564
Funds withheld at interest 9,813 7,481 5,366
Other 406 66 83
- ---------------------------------------------------------------------------------------------
Investment revenue 138,089 90,756 71,958
Investment expense 1,261 639 655
- ---------------------------------------------------------------------------------------------
Net investment income $136,828 $90,117 $71,303
=============================================================================================
N O T E S to C O N S O L I D A T E D 31
F I N A N C I A L S T A T E M E N T S
20
The amortized cost, gross unrealized gains and losses, and estimated fair
values of investments in fixed maturity securities at December 31, 1996 and
1995 are as follows (in thousands):
Amortized Unrealized Unrealized Fair
1996 Cost Gains Losses Value
Available for sale:
U.S. government and agencies $ 66,236 $ 359 $ 273 $ 66,322
Canadian government 17,531 2,082 - 19,613
Canadian provinces and
municipalities 139,701 33,778 466 173,013
Argentine government and agencies 451 - - 451
Chilean government and agencies 28,591 - - 28,591
Australian government agencies 9,115 280 20 9,375
Commercial and industrial 409,823 11,827 3,277 418,373
Finance 116,500 2,843 451 118,892
Public utilities 76,699 1,877 562 78,014
Mortgage-backed securities 552,296 2,782 3,297 551,781
Asset-backed securities 52,706 161 28 52,839
----------------------------------------------------------------------------------------------------
$1,469,649 $55,989 $8,374 $1,517,264
====================================================================================================
Amortized Unrealized Unrealized Fair
1995 Cost Gains Losses Value
Available for sale:
U.S. government and agencies $ 64,380 $ 3,212 $ 82 $ 67,510
Canadian government 14,903 1,265 4 16,164
Canadian provinces and municipalities 111,490 20,269 33 131,726
Argentine government and agencies 1,019 - - 1,019
Chilean government and agencies 20,368 - - 20,368
Commercial and industrial 267,898 20,960 1,666 287,192
Finance 57,874 3,156 38 60,992
Public utilities 61,833 3,099 226 64,706
Mortgage-backed securities 198,417 3,306 195 201,528
Asset-backed securities 21,479 120 - 21,599
----------------------------------------------------------------------------------------------------
$819,661 $55,387 $2,244 $872,804
====================================================================================================
32
21
There were no investments in any entity in excess of 10% of stockholders'
equity at December 31, 1996 or 1995, other than investments issued or
guaranteed by the U.S. government. Publicly traded fixed maturity securities
are valued based upon quoted market prices. Private placement securities are
valued based on the credit quality and duration of marketable securities
deemed comparable by the Company, which may be of another issuer.
At December 31, 1996 and 1995, the aggregate fair value of policy loans
approximates the carrying value reflected on the consolidated balance sheet.
Policy loans typically carry an interest rate that is tied to the crediting
rate applied to the related policy and contract reserves.
The carrying value of short-term investments at December 31, 1996 and 1995,
approximates fair value. Equity investments and derivative financial
instruments included in other invested assets are reflected at fair value on
the consolidated balance sheets. The cost of these equity investments at
December 31, 1996 and 1995, was approximately $5,997,000 and $3,112,000
respectively, which approximates fair value. The cost of the derivative
financial instruments at December 31, 1996, was approximately $662,000, which
approximates fair value.
At December 31, 1996, the contractual maturities of investments in fixed
maturity securities were as follows (in thousands):
Amortized Fair
Cost Value
Available for sale:
Due in one year or less $ 16,746 $ 16,860
Due after one year through five years 182,903 187,107
Due after five years through ten years 319,316 327,968
Due after ten years 398,388 433,548
Mortgage-backed securities 552,296 551,781
----------------------------------------------------------------------------
$1,469,649 $1,517,264
============================================================================
Net realized gains from sales of investments in fixed maturity securities and
equity securities, all of which represent activity in the investments held
for sale, consist of the following (in thousands):
Years Ended December 31 1996 1995 1994
Fixed maturities:
Realized gains $ 5,182 $ 2,462 $ 1,540
Realized losses (3,972) (2,431) (1,100)
Equity securities:
Realized gains - - 701
Realized losses - - (316)
Other (280) - -
- ---------------------------------------------------------------------------------------
Net gains $ 930 $ 31 $ 825
=======================================================================================
N O T E S to C O N S O L I D A T E D 33
F I N A N C I A L S T A T E M E N T S
22
Change in net unrealized gains (losses) were as follows (in thousands):
Years Ended December 31 1996 1995 1994
Fixed maturity securities held
to maturity $ - $ 2,182 $(24,520)
Fixed maturity securities
available for sale (5,528) 90,651 (54,311)
Equity securities - - (572)
--------------------------------------------------------------------------------------
$(5,528) $92,833 $(79,403)
======================================================================================
Effective December 31, 1995, the Company reclassified its entire portfolio of
fixed maturities held to maturity as available for sale. Fixed maturity
securities with an amortized cost of $113,485,918 and unrealized gains of
$19,405,392 were transferred from the held to maturity classification to
available for sale.
Securities with an amortized cost of $2,370,000 were on deposit with various
state or governmental insurance departments to comply with applicable
insurance laws at December 31, 1996 and 1995.
As of December 31, 1996 and 1995, the Company's mortgage loans were
distributed as follows (in thousands):
1996 1995
Carrying Percentage Carrying Percentage
Value of Total Value of Total
United States:
Arizona $15,554 15.79% $ - -%
California 4,957 5.03 - -
Colorado 3,374 3.42 - -
Florida 1,694 1.72 - -
Georgia 5,038 5.11 - -
Illinois 4,575 4.64 - -
Kansas 1,750 1.78 - -
Missouri 6,406 6.50 - -
Oklahoma 2,488 2.52 - -
Texas 3,794 3.85 - -
Virginia 3,129 3.17 - -
Washington 6,209 6.30
Chile 39,597 40.17 14,653 100.00
======================================================================================================
98,565 100.00% 14,653 100.00%
Less: Allowance 303 -
- ------------------------------------------------------------------------------------------------------
Total $98,262 $14,653
======================================================================================================
34
23
1996 1995
Carrying Percentage Carrying Percentage
Value of Total Value of Total
Property Type
Apartment $ 6,452 6.55% $ - -%
Retail 57,367 58.19 14,653 100.00
Office building 19,473 19.76 - -
Industrial 7,853 7.97 - -
Other commercial 7,420 7.53 - -
- -------------------------------------------------------------------------------------------------------
98,565 100.00% 14,653 100.00%
Less: Allowance 303 -
- -------------------------------------------------------------------------------------------------------
Total $98,262 $14,653
=======================================================================================================
The Company makes mortgage loans on income producing properties, such as
apartments, retail and office buildings, light warehouses and light
industrial facilities. Loan to value ratios at the time of loan approval are
80 percent or less for domestic mortgages and 90 percent or less for Chilean
mortgages.
The estimated fair value of the Company's mortgage loan portfolio at December
31, 1996 and 1995, was approximately $100.1 million and $14.7 million
respectively.
All domestic mortgage loans were originated in calendar year 1996. No loans
were delinquent and no specific loans have been deemed impaired as of
December 31, 1996 or 1995, in the mortgage loan portfolio. In 1996, the
Company recorded a valuation allowance of $303,000 to be used against
possible future losses on the loan portfolio.
The maturities of the mortgage loans are as follows (in thousands):
1996 1995
Due within one year $ - $ -
Due one year through five years 3,299 -
Due after five years 95,266 14,653
- ------------------------------------------------------------------------
98,565 14,653
Less: Allowance 303 -
- ------------------------------------------------------------------------
Total $98,262 $14,653
========================================================================
N O T E S to C O N S O L I D A T E D 35
F I N A N C I A L S T A T E M E N T S
24
Note 5 REINSURANCE On January 1, 1993, RGA Reinsurance entered into
an indemnity reinsurance agreement with General American pursuant to which
all of the business of General American's reinsurance division was
transferred to RGA Reinsurance, net of the financial effects of all other
retrocession agreements of the reinsurance division. As a result of the
indemnity reinsurance agreement and certain other related transactions, the
Company has all of the economic benefits and risks of the reinsurance
agreements whether under facultative or automatic reinsurance treaties. The
amounts stated in the consolidated financial statements reflect the aggregate
amounts of all such business retroceded to the Company.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders or direct writing companies. Failure of retrocessionaires to
honor their obligations could result in losses to the Company; consequently,
allowances would be established for amounts deemed uncollectible. At December
31, 1996 and 1995, no allowances were deemed necessary. The Company evaluates
the financial condition of its reinsurers annually.
At December 31, 1996, there were no reinsurance premium receivables
associated with a single reinsurer with a carrying value in excess of 5% of
total assets.
The effect of reinsurance on premiums and amounts earned is as follows (in
thousands):
Years Ended December 31 1996 1995 1994
Direct premiums and amounts assessed
against policyholders $ 44,210 $ 36,385 $ 12,126
Reinsurance assumed 840,349 711,876 624,030
Reinsurance ceded (209,674) (178,271) (184,416)
- ---------------------------------------------------------------------------------------
Net premiums and amounts earned $ 674,885 $ 569,990 $ 451,740
=======================================================================================
The effect of reinsurance on policyholder claims and other policy benefits is
as follows (in thousands):
Years Ended December 31 1996 1995 1994
Direct $ 41,598 $ 31,431 $ 10,574
Reinsurance assumed 611,761 536,472 464,416
Reinsurance ceded (92,914) (104,036) (116,735)
- ---------------------------------------------------------------------------------------
Net policyholder claims and benefits $560,445 $ 463,867 $ 358,255
=======================================================================================
The impact of reinsurance on life insurance in force is shown in the
following schedule (in millions):
Assumed/
Life Insurance In Force Direct Assumed Ceded Net Net %
December 31, 1996 $85 $168,339 $39,050 $129,374 130.12%
December 31, 1995 85 153,861 25,275 128,671 119.58%
December 31, 1994 98 142,374 20,748 121,724 116.97%
36
25
At December 31, 1996, RGA Reinsurance has provided $604,000,000 of statutory
financial reinsurance to other insurance companies under reinsurance
transactions to assist those companies in meeting applicable regulatory
requirements and to enhance those companies' financial strength. Generally,
such transactions are provided by RGA Reinsurance committing cash or assuming
insurance liabilities, and are secured by future profits on the reinsured
business.
RGA Reinsurance has retroceded approximately $527,800,000 of its assumed
financial reinsurance to third party companies, $66,900,000 to General
American, and $9,300,000 to RGA Barbados. RGA Reinsurance earns a return
based on the amount of net outstanding financial reinsurance. RGA Reinsurance
effects the retrocession through ceding insurance liabilities or receiving
cash from retrocessionaires.
Note 6 DEFERRED POLICY ACQUISITION COSTS The following reflects the
amounts of policy acquisition costs deferred and amortized (in thousands):
Years Ended December 31 1996 1995 1994
Deferred acquisition cost
Assumed $241,978 $192,116 $162,671
Retroceded (8,413) (5,303) (5,512)
------------------------------------------------------------------------------------
Net $233,565 $186,813 $157,159
====================================================================================
Beginning of year $186,813 $157,159 $141,438
Capitalized
Assumed 115,732 78,847 59,700
Retroceded (16,993) (7,860) (8,237)
Amortized
Assumed (65,870) (49,402) (44,153)
Retroceded 13,883 8,069 8,411
----------------------------------------------------------------------------------
End of year $233,565 $186,813 $157,159
=======================================================================================
Some reinsurance agreements involve reimbursing the ceding company for
allowances and commissions in excess of first year premiums. These amounts
represent an investment in the reinsurance agreement and are capitalized, to
the extent deemed recoverable from the future premiums, and amortized against
the future profits of the business. This type of agreement presents a risk to
the extent the business lapses faster than originally anticipated resulting
in future profits being insufficient to recover the Company's investment. The
Company recognizes this risk by reflecting systematic charges against
earnings each year in anticipation of some business ultimately lapsing at a
higher than expected rate. During 1996, one of the Company's reinsurance
agreements experienced significant lapses which resulted in the premature
termination of the agreement and recognition of an additional loss of $2.5
million in operations.
Note 7 INCOME TAX Income tax expense attributable to income from
continuing operations consists of the following (in thousands):
Years Ended December 31 1996 1995 1994
Current income tax $15,776 $11,406 $18,734
Deferred income tax expense 10,211 12,289 3,227
Foreign current tax 2,216 1,374 883
Foreign deferred tax 3,484 2,079 786
- ---------------------------------------------------------------------------------------
Total income tax $31,687 $27,148 $23,630
=======================================================================================
N O T E S to C O N S O L I D A T E D 37
F I N A N C I A L S T A T E M E N T S
26
Income tax expense attributable to income from continuing operations differed
from the amounts computed by applying the U.S. federal income tax rate of 35%
to pre-tax income as a result of the following (in thousands):
Years Ended December 31 1996 1995 1994
Computed "expected" tax expense $30,471 $26,117 $22,531
Increase in income taxes resulting from:
Foreign tax rate in excess of U.S. tax rate 941 763 683
Other, net 275 268 416
---------------------------------------------------------------------------------------------------
Total tax expense $31,687 $27,148 $23,630
==================================================================================================
Total income taxes were as follows (in thousands):
Years Ended December 31 1996 1995 1994
Income tax from continuing operations: $31,687 $27,148 $ 23,630
Income tax from stockholders' equity
Unrealized holding gain or loss on debt and equity
securities recognized for financial reporting purposes (910) 33,496 (13,363)
Exercise of stock options (1,023) - -
---------------------------------------------------------------------------------------------------
Total income tax provided $29,754 $60,644 $ 10,267
==================================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995, are presented below (in thousands):
Years Ended December 31 1996 1995
Deferred tax assets:
Nondeductible accruals $ 3,067 $ 1,630
Differences between tax and financial reporting amounts
concerning certain reinsurance transactions and reserve for policies 14,991 5,097
Deferred acquisition costs capitalized for tax 8,323 9,233
Net operating loss 21,876 10,477
---------------------------------------------------------------------------------------------------
Subtotal 48,257 26,437
Valuation allowance (371) -
- ------------------------------------------------------------------------------------------------------
Total deferred assets $ 47,886 $26,437
==================================================================================================
Deferred tax liabilities:
Deferred acquisition costs capitalized for financial reporting $101,708 $66,655
Pension plan overfunding 231 274
Differences in the tax basis of cash and invested assets 19,222 20,609
Other, net - 68
---------------------------------------------------------------------------------------------------
Total deferred liabilities 121,161 87,606
--------------------------------------------------------------------------------------------------
Net deferred liabilities $ 73,275 $61,169
==================================================================================================
38
27
As of December 31, 1996, a valuation allowance for deferred tax assets of
$370,581 was provided on the net operating losses of RGA Australia,
Manantial, and RGA Holdings Limited (U.K.).There was no valuation allowance
required for deferred tax assets as of December 31, 1995. The Company has not
recognized a deferred tax liability for the undistributed earnings of its
wholly owned domestic and foreign subsidiaries because the Company currently
does not expect those unremitted earnings to become taxable to the Company in
the foreseeable future. This is due to the fact that the unremitted earnings
will not be repatriated in the foreseeable future, or because those
unremitted earnings that may be repatriated will not be taxable through the
application of tax planning strategies that management would utilize.
At December 31, 1996, the Company had capital loss carry forwards of
$897,000. During 1996, 1995, and 1994, the Company made approximately
$8,585,000, $18,948,000, and $28,942,000 in income tax payments,
respectively. At December 31, 1996, the Company recognized deferred tax
assets associated with net operating losses of approximately $61,400,000.
This net operating loss is expected to be utilized in the normal course of
business during the period allowed for carry forwards and in any event, will
not be lost due to the application of tax planning strategies that management
would utilize.
Note 8 EMPLOYEE BENEFIT PLANS Most of the Company's U.S. employees
participate in a non-contributory multi-employer defined benefit pension plan
jointly sponsored by RGA Reinsurance and General American. The benefits are
based on years of service and compensation levels. RGA Reinsurance's funding
policy is to contribute the maximum amount deductible for federal income tax
purposes annually. The following table presents net periodic pension cost and
the plan's funded status (in thousands):
Years Ended December 31 1996 1995 1994
Service cost $ 267 $ 175 $ 189
Interest 251 185 165
Return on plan assets and other (294) (284) (292)
- ------------------------------------------------------------------------------------------------------
Pension costs $ 224 $ 76 $ 62
===================================================================================================
Years Ended December 31 1996 1995 1994
Accumulated benefit obligation $2,870 $2,867 $2,066
- ------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $3,967 $3,963 $2,994
Plan assets at fair value 4,527 4,523 3,777
- ------------------------------------------------------------------------------------------------------
Pension costs funded in advance $ 560 $ 560 $ 783
===================================================================================================
The plan's accumulated benefit obligation valued as of December 31, 1996, was
$2,870,422, including vested benefits of $2,664,478. Total assets of the
entire plan exceeded the actuarial computed present value of vested and
non-vested benefits at January 1, 1996 and 1995. Significant assumptions
include discount rates of 7.25%, 7.50% and 7.00% and rates of increase in
future compensation levels of 4.50%, 5.50% and 4.50% for the years ended
December 31, 1996, 1995 and 1994, respectively.
Certain management individuals participate in several nonqualified defined
benefit and defined contribution plans sponsored by General American and RGA
Reinsurance. Those plans are unfunded and are deductible for federal income
tax purposes when the benefits are paid. Additionally, full-time salaried
employees with at least one year of service participate in a profit-sharing
plan sponsored by RGA Reinsurance which is tied to RGA's operating results.
Contributions to that plan have been determined annually by the RGA Board of
Directors and are based upon the salaries of eligible employees. Full vesting
occurs after five years of continuous service. Total expense to the Company
for the management defined benefit and defined contribution plans and the
employee profit-sharing plan was $1,189,613, $921,788, and $715,081 for 1996,
1995, and 1994, respectively.
N O T E S to C O N S O L I D A T E D 39
F I N A N C I A L S T A T E M E N T S
28
The Company also provides certain health care and life insurance benefits for
retired employees through a self-insured plan. Employees become eligible for
these benefits if they meet minimum age and service requirements. The
retiree's cost for health care benefits varies depending upon the credited
years of service.
A summary of net periodic postretirement benefit costs and accumulated
postretirement benefit obligation follows (in thousands):
Years Ended December 31 1996 1995 1994
Net periodic postretirement benefit costs:
Service cost $ 98 $ 84 $ 74
Interest 135 138 69
------------------------------------------------------------------------------------
Net cost $233 222 143
==================================================================================
Years Ended December 31 1996 1995 1994
Accumulated postretirement benefit obligation:
Retirees $ 47 $ - $ -
Fully eligible active plan participants 430 352 243
Other active plan participants 856 748 635
------------------------------------------------------------------------------------
Accrued postretirement benefit cost $1,333 $1,100 $878
==================================================================================
The 1996 postretirement benefit costs assumes a weighted average annual rate
of increase in per capita cost of covered health care benefits of 8.0% and
7.0% for the indemnity and "HMO" plans, respectively. The trend rates
decrease gradually to 5.25% for 2009 and thereafter. The health care cost
trend rate assumption has a significant effect on the amounts reported.
Increasing the assumed health care trend rate one percentage point in each
year would increase the accumulated postretirement benefit obligation as of
December 31, 1996 by approximately $185,000 and the net periodic
postretirement benefit cost for 1996 by approximately $31,000. The weighted
average discount rate used in determining the accumulated postretirement
benefit obligation at December 31, 1996 was 7.25%. There are no plan assets.
Note 9 RELATED PARTY TRANSACTIONS The Company and General American are
parties to shareholder agreements with the minority shareholders of Fairfield
Management Group Inc., a holding company for a reinsurance intermediary and
management company, which afford the minority shareholders certain
preferential shareholder rights (put and first refusal rights) which may be
exercised by the minority shareholders upon the occurrence of specified
future events. The Company does not believe that the exercise of these rights
will have a material adverse effect upon the Company's results of operations
or financial position in the future.
Effective January 1, 1993, Conning Asset Management Company, formerly known
as General American Investment Management Company, a wholly owned subsidiary
of General American, has provided investment advisory services to RGA, RGA
Reinsurance, RGA Barbados, Australian Holdings, and RGA Canada. These
services have been provided pursuant to written agreements at the rate of
.09% of fixed income assets managed and .22% of mortgage loans managed,
payable quarterly, based on the book value of the portfolio managed at the
end of each calendar quarter. The cost for the years ended December 31, 1996,
1995, and 1994, was approximately $1,160,000, $616,000, and $409,000,
respectively.
Subject to written agreements, General American has historically provided
certain administrative services to RGA and RGA Reinsurance. Such services
include legal, treasury, employee benefit, payroll, and personnel. The cost
for the years ended December 31, 1996, 1995, and 1994, was approximately
$1,786,000, $1,474,000, and $842,000, respectively. Management does not
believe that the various amounts charged by General American to the Company
would be materially different if they had been incurred from an unrelated
third party.
40
29
Pursuant to a marketing agreement, beginning January 1, 1993, General
American agreed to amend and terminate its assumed and retrocession
reinsurance agreements only at the direction of RGA Reinsurance, thus giving
RGA Reinsurance the contractual right to direct future changes to existing
reinsurance agreements. General American charges RGA Reinsurance quarterly an
amount equal to, on an annual basis, 0.25% of specified policy-related
liabilities that are associated with existing and future treaties written by
General American for the benefit of RGA Reinsurance. RGA Reinsurance is
currently writing reinsurance business for its own account, and may, at its
sole option, terminate the marketing agreement at any time before its
expiration date of January 1, 2000. Payment under the agreement for the years
ended December 31, 1996, 1995, and 1994, was $186,000, $196,000, and
$265,000, respectively.
The Company has utilized the services of two consulting firms, relative to
which an executive officer of RGA has served or currently serves as a
principal. The Company uses the consulting firm primarily for market research
and development. Payments under consulting agreements for the years ended
December 31, 1996, 1995, and 1994, were approximately $588,000, $606,000 and
$489,000, respectively.
The Company conducts its business primarily from premises leased by RGA
Reinsurance. RGA Reinsurance made rental payments in 1996, 1995, and 1994 to
General American principally for office space of approximately $1,458,000,
$952,000 and $682,000, respectively.
The Company also has direct policies and reinsurance agreements with General
American and its subsidiaries. Under these agreements, the Company reflected
earned premiums of approximately $20,640,000, $32,107,000, and $24,322,000,
in 1996, 1995, and 1994, respectively. Underwriting gain on this business was
approximately $1,162,000, $183,000, and $509,000 in 1996, 1995, and 1994,
respectively. In 1996, 1995, and 1994 this business reflected positive net
cash flows of approximately $1,528,000, $26,645,000, and $5,415,000
respectively.
Note 10 LEASE COMMITMENTS The Company leases office space and furniture
and equipment under non-cancelable operating lease agreements which expire at
various dates.
Future minimum office space annual rentals under non-cancelable operating
leases at December 31, 1996 are as follows:
1997 $2,453,306
1998 1,610,201
1999 339,162
2000 316,163
2001 316,163
Rent expenses amount to approximately $2,551,000, $1,630,000, and $1,229,000
for the years ended December 31, 1996, 1995, and 1994, respectively.
Note 11 FINANCIAL CONDITION AND NET INCOME ON A STATUTORY BASIS-SUBSIDIARIES
The statutory basis financial condition of RGA Reinsurance and RGA Canada as
of December 31, 1996 and 1995, was as follows (in thousands):
RGA Reinsurance RGA Canada
1996 1995 1996 1995
Admitted assets $1,972,598 $1,364,546 $187,908 $149,196
Liabilities 1,766,731 1,186,168 151,540 116,988
- ---------------------------------------------------------------------------------------------------
Total capital and surplus $ 205,867 $ 178,378 $ 36,368 $ 32,208
===================================================================================================
N O T E S to C O N S O L I D A T E D 41
F I N A N C I A L S T A T E M E N T S
30
The statutory basis net income of RGA Reinsurance and RGA Canada for the
periods indicated was as follows (in thousands):
RGA Reinsurance RGA Canada
1996 1995 1994 1996 1995 1994
Net income $ 25,988 $ 25,422 $ 19,973 $ 4,389 $ 3,464 $ 2,412
==================================================================================================================
RGA Reinsurance is subject to statutory regulations that restrict the payment
of dividends. It may not pay dividends in any 12-month period in excess of
the greater of the prior year's statutory operating income or 10% of capital
and surplus at the preceding year-end, without regulatory approval.
Accordingly, dividends from RGA Reinsurance to its parent in 1997 are limited
to $25,988,000 without such regulatory approval. RGA Reinsurance has made no
dividend payments to RGA to date. The maximum amount available for dividends
by RGA Canada under the Canadian Minimum Continuing Capital and Surplus
Requirements (MCCSR) is $7.2 million.
Note 12 COMMITMENTS AND CONTINGENT LIABILITIES From time to time, the
Company is subject to reinsurance-related litigation and arbitration in the
normal course of its business. Management does not believe that the Company
is a party to any such pending litigation or arbitration which would have a
material adverse effect on its future operations.
The Company has obtained letters of credit in favor of various unaffiliated
insurance companies from which the Company assumes business. This allows the
ceding company to take statutory reserve credit. The letters of credit issued
by banks represent a guarantee of performance under the reinsurance
agreements. At December 31, 1996, there was approximately $12,980,000 of
outstanding bank letters of credit to the favor of unaffiliated entities.
Note 13 SEGMENT INFORMATION The following summarizes the Company's
principal operations (in thousands):
Years Ended December 31 1996 1995 1994
U.S. ordinary life:
Revenues $ 618,571 $ 497,368 $ 402,184
Income before income taxes and minority interest 80,011 62,646 63,099
Total assets 2,353,778 1,588,824 1,129,909
Aggregate depreciation and amortization 34,582 32,793 25,625
Canadian ordinary life:
Revenues $ 78,549 $ 60,315 $ 50,162
Income before income taxes and minority interest 13,436 10,880 6,817
Total assets 321,314 247,432 177,182
Aggregate depreciation and amortization 1,969 2,463 3,462
Accident and Health:
Revenues $ 58,869 $ 48,852 $ 49,751
Income/(loss) before income taxes and minority interest (4,120) (698) (5,420)
Total assets 48,818 53,656 49,399
Aggregate depreciation and amortization 15,888 6,827 6,836
Other International:
Revenues $ 74,040 $ 61,597 $ 23,698
Income/(loss) before income taxes and minority interest (2,266) 1,791 (122)
Total assets 169,744 100,022 37,803
Aggregate depreciation and amortization 578 454 758
Capital expenditures of each reporting segment were insignificant in the
periods noted.
42
31
Note 14 STOCK OPTIONS The Company adopted the RGA Flexible Stock Plan
(the "Plan") in February 1993. The Plan provides for the award of benefits
(collectively "Benefits") of various types, including stock options, stock
appreciation rights ("SARs"), restricted stock, performance shares, cash
awards, and other stock based awards. Options are granted with an exercise
price equal to the stock's fair value at the date of grant. Information with
respect to grants follows.
Shares Options Outstanding Weighted-Average
Available Shares Options Price Exercise Price
Balance at December 31, 1993 490,000 335,000 $26.00
Additional authorized 41,250
Granted (184,700) 184,700 27.50
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 346,550 519,700 26.00-27.50
Additional authorized 43,313
Granted (32,154) 32,154 27.50 $ 27.50
Exercised (7,500) 26.00 26.00
Forfeited 13,600 (13,600) 26.00-27.50 26.84
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 371,309 530,754 26.00-27.50 26.59
Additional authorized 45,478
Granted (119,588) 119,588 35.125-45.50 44.278
Exercised (155,000) 26.00 26.00
Forfeited 13,709 (13,709) 26.00-27.50 27.23
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 310,908 481,633 $26.00-$45.50 $ 31.16
=====================================================================================================================
Options granted in May 1993 are currently exercisable with respect to 100% of
the shares covered. The January 1994 and 1995 options represent multiple-year
block grants which vest over a period of two to eight years. The options are
exercisable for a period of up to ten years after date of grant. Options
granted in December 1996 totaling 105,500, vest in December 1999 and are
exercisable until May 2003. These options were granted in connection with the
exercise of some of the May 1993 options. Options granted in January 1996
totaling 14,088, represent a block grant which vests over a period of one to
six years. The January 1996 options are exercisable for a period of up to ten
years after date of grant.
At December 31, 1996, there were 310,908 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock
options granted during 1996 and 1995 was $11.10 and $7.91 on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 1996-expected dividend yield of 0.7%, risk-free
interest rate of 5.90%, expected life of 3.3 years, and an expected rate of
volatility of the stock of 26% over the expected life of the options;
1995-expected dividend yield of 0.7%, risk-free interest rate of 7.72%,
expected life of 5.5 years, and an expected rate of volatility of the stock of
26% over the expected life of the options.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options
in the financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under
Statement of Financial Accounting Standards No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below. The effects of applying Statement of Financial Accounting
Standards No. 123 may not be representative of the effects on reported net
income for future years.
N O T E S to C O N S O L I D A T E D 43
F I N A N C I A L S T A T E M E N T S
32
1996 1995
Net income (in thousands) As reported $55,072 $47,291
Pro forma $54,999 $47,259
Primary earnings per share As reported $ 3.24 $ 2.80
Pro forma $ 3.23 $ 2.80
At December 31, 1996 and 1995, the number of options exercisable was 181,492
and 334,827 respectively, and the weighted-average exercise price of those
options was $26.25 and $26.06 respectively. At December 31, 1996 and 1995,
the range of exercise prices and weighted-average remaining contractual life
of exercisable options was $26.00 to $35.125 and 6.77 years, and $26.00 to
$27.50 and 7.71 years, respectively. The weighted-average remaining
contractual life of outstanding options at December 31, 1996 and 1995, was
6.95 years and 7.89 years, respectively.
In January 1997, the Board approved the grant of an additional 123,800 stock
options at $45.625 per share under the Company's Flexible Stock Plan. The
options vest in 20% annual increments beginning January 1998.
Note 15 FINANCING ACTIVITIES On March 19, 1996, RGA issued 7 1/4%
Senior Notes with a face value of $100,000,000 in accordance with Rule 144A
of the Securities Act of 1933, as amended. The net proceeds from the offering
were approximately $98,943,000, and interest is payable semiannually on April
1 and October 1, with the principal amount due April 1, 2006. The estimated
fair market value of the debt as of December 31, 1996, was approximately
$100,367,000. The ability of the Company to make debt principal and interest
payments as well as to make dividend payments to shareholders is ultimately
dependent on the earnings and surplus of subsidiaries and the investment
earnings on the undeployed debt proceeds. The transfer of funds from the
insurance subsidiaries to RGA is subject to applicable insurance laws and
regulations. In addition, the debt agreement contains certain restrictions
related to liens and the issuance and disposition of stock of restricted
subsidiaries. The Company must also comply with specific reporting
requirements with notices given to the fiscal agent at prescribed dates. As
of December 31, 1996, the Company was in compliance with all covenants under
its debt agreement.
On January 8, 1996, Australian Holdings established a $15,894,000 unsecured,
three month, revolving line of credit. The debt is guaranteed by the Company
and is utilized to provide operating capital to RGA Australia. The
outstanding balance at December 31, 1996, was $7,550,000, representing
drawdowns of $5,563,000 in January 1996 and $1,987,000 in July 1996.
Principal repayments are due in April 1997 and are expected to be renewed
under the terms of the line of credit. Interest is paid every three months at
a current rate between 7.03% and 7.08%. This agreement contains various
restrictive covenants which primarily pertain to limitations on the quality
and types of investments, minimum requirements of net worth, and minimum
rating requirements. Additionally, the Company must comply with several
financial covenant restrictions under the revolving credit agreement which
include defined ratios of consolidated funded debt to total capitalization
for RGA and for Australian Holdings. As of December 31, 1996, the Company was
in compliance with all covenants under this debt agreement.
Interest paid on debt during 1996 was $6,169,000.
44
33
Note 16 PARENT COMPANY FINANCIAL INFORMATION The following are the
condensed balance sheets as of December 31, 1996, 1995 and 1994, and the
condensed statements of income and cash flows for the periods ended December
31, 1996, 1995, and 1994, for Reinsurance Group of America, Incorporated
(parent company only)(in thousands of dollars):
Years Ended December 31 1996 1995 1994
Condensed Balance Sheets
Assets:
Fixed maturity securities (available for sale) $ 82,571 $ 11,518 $ 33,731
Short-term investments 14,979 10,823 465
Cash (44) 32 10
Investment in subsidiaries 423,278 352,055 238,778
Other assets 4,706 2,246 3,282
----------------------------------------------------------------------------------------------------
Total assets $525,490 $376,674 $276,266
==================================================================================================
Liabilities and stockholders' equity:
Long-term debt $ 98,943 $ - $ -
Other liabilities 989 (255) (522)
Stockholders' equity 425,558 376,929 276,788
----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $525,490 $376,674 $276,266
==================================================================================================
Condensed Statements of Income
Interest income $ 5,151 $ 1,559 $ 2,346
Realized investments losses, net (150) (409) (494)
Operating expenses (2,051) (2,037) (896)
Interest expense (5,685) - -
----------------------------------------------------------------------------------------------------
Income before income tax and undistributed
earnings of subsidiaries (2,735) (887) 956
Income tax expense (benefit) (1,003) (344) 342
----------------------------------------------------------------------------------------------------
Net income before undistributed earnings of subsidiaries (1,732) (543) 614
Equity in undistributed earnings of subsidiaries 56,804 47,834 39,811
----------------------------------------------------------------------------------------------------
Net income $ 55,072 $ 47,291 $ 40,425
==================================================================================================
Condensed Statements of Cash Flows
Operating activities:
Net income $ 55,072 $ 47,291 $ 40,425
Equity in earnings of subsidiaries (56,804) (47,834) (39,811)
Other, net 1,939 1,161 149
----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 207 618 763
==================================================================================================
Investing activities:
Sales of fixed maturity securities available for sale 24,444 23,623 26,465
Purchases of fixed maturity securities available for sale (95,959) - (4,138)
Change in short-term investments (4,156) (10,358) (240)
Payment for purchase of stock in subsidiaries (4,482) (5,259) (8,277)
Capital contributions to subsidiaries (18,054) (2,000) -
----------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (98,207) 6,006 13,810
==================================================================================================
Financing activities:
Dividends to stockholders (5,050) (4,376) (4,124)
Acquisition of treasury stock - (2,422) (11,265)
Reissuance of treasury stock 4,031 196 -
Proceeds from long-term debt issuance, net 98,943 - -
----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 97,924 (6,602) (15,389)
Net change in cash and cash equivalents (76) 22 (816)
Cash and cash equivalents at beginning of year 32 10 826
----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ (44) $ 32 $ 10
====================================================================================================
N O T E S to C O N S O L I D A T E D 45
F I N A N C I A L S T A T E M E N T S
34
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Reinsurance Group of America, Incorporated:
We have audited the accompanying consolidated balance sheets of Reinsurance
Group of America, Incorporated and subsidiaries (the Company) as of December
31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Reinsurance Group of America, Incorporated and subsidiaries as of December
31, 1996 and 1995, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
St. Louis, Missouri
February 7, 1997
46
35
REPORT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated balance sheets of Reinsurance Group of America, Incorporated
and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, cash flows and stockholders' equity for
the years ended December 31, 1996, 1995, and 1994, have been prepared by
management, which is responsible for their integrity and objectivity. The
statements have been prepared in accordance with generally accepted
accounting principles and include some amounts that are based upon
management's best estimates and judgments. The financial information
contained elsewhere in this annual report is consistent with that contained
in the financial statements.
Management is responsible for establishing and maintaining a system of
internal control designed to provide reasonable assurance as to the integrity
and reliability of financial reporting. The concept of reasonable assurance
is based on the recognition that there are inherent limitations in all
systems of internal control, and that the cost of such systems should not
exceed the benefits derived therefrom. A professional staff of internal
auditors reviews, on an ongoing basis, the related internal control system
design, the accounting policies and procedures supporting this system, and
compliance therewith. Management believes this system of internal control
effectively meets its objective of reliable financial reporting.
In connection with annual audits, independent certified public accountants
perform an examination in accordance with generally accepted auditing
standards, which includes the consideration of the system of internal control
to the extent necessary to form an independent opinion on the financial
statements prepared by management.
The Board of Directors, through its Audit Committee, which is composed solely
of directors who are not employees of the Company, is responsible for
overseeing the integrity and reliability of the Company's accounting and
financial reporting practices and the effectiveness of its system of internal
controls. The independent certified public accountants and internal auditors
meet regularly with, and have access to, this committee, with and without
management present, to discuss the results of their audit work.
/s/ Richard A. Liddy /s/ A. Greig Woodring
Richard A. Liddy A. Greig Woodring
Chairman of the Board of Directors President and Chief Executive Officer
/s/ Jack B. Lay /s/ Todd C. Larson
Jack B. Lay Todd C. Larson
Executive Vice President and Vice President and Controller
Chief Financial Officer
47
36
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The consolidated selected financial data presented below for, and as of the
end of, each of the years in the five-year period ended December 31, 1996,
have been prepared in accordance with generally accepted accounting
principles prescribed for stock life companies. The consolidated financial
statements represent the reinsurance operations of General American as if
those operations were consolidated with RGA in 1992. In 1993, the reinsurance
operations were transferred or contributed to RGA from General American along
with the related assets and liabilities of the reinsurance operations. All
amounts shown are in millions, except per share and operating data. The
following selected financial data should be read in conjunction with the
Notes to the Consolidated Financial Statements.
Years Ended December 31, 1996 1995 1994 1993 1992
Operating data
Revenues:
Net premiums $ 674.9 $ 570.0 $ 451.7 $ 379.9 $ 369.4
Net investment income 136.8 90.1 71.3 60.3 46.6
Realized investment gains, net 0.9 - 0.8 3.6 1.9
Other revenue 17.4 8.0 1.9 2.7 2.6
--------------------------------------------------------------------------------------------------------------
Total revenues 830.0 668.1 525.7 446.5 420.5
=============================================================================================================
Benefits and Expenses:
Claims and other policy benefits 560.4 463.8 358.2 301.1 287.6
Policy acquisition costs
and other insurance expenses 136.5 98.1 78.6 70.9 74.8
Other operating expenses 39.8 31.6 24.5 19.6 15.9
Interest expense 6.2 - - - -
--------------------------------------------------------------------------------------------------------------
Total benefits and expenses 742.9 593.5 461.3 391.6 378.3
=============================================================================================================
Income before income taxes
and minority interest 87.1 74.6 64.4 54.9 42.2
Income tax expense 31.7 27.1 23.7 20.2 15.4
Minority interest 0.3 0.2 0.3 0.6 1.0
--------------------------------------------------------------------------------------------------------------
Net income $ 55.1 $ 47.3 $ 40.4 $ 34.1 $ 25.8
--------------------------------------------------------------------------------------------------------------
Earnings per share $ 3.24 $ 2.80 $ 2.36 $ 2.24 $ 2.41
Cash dividends per share $ 0.30 $ 0.26 $ 0.24 $ 0.12 -
- ----------------------------------------------------------------------------------------------------------------
Weighted average common shares,
in thousands 17,004 16,883 17,152 15,157 10,725
=============================================================================================================
Balance Sheet Data
Total investments $2,272.0 $1,405.5 $1,016.6 $ 920.6 $ 608.4
Total assets 2,893.7 1,989.9 1,394.3 1,249.6 865.4
Policy liabilities 2,068.6 1,408.3 1,043.9 886.5 709.8
Total debt 106.5 - - - -
Stockholders' equity 425.6 376.9 276.8 279.4 101.0
Stockholders' equity per share 25.03 22.41 16.37 16.09 9.42
Operating Data (in billions)
Assumed ordinary life reinsurance
business in force $ 168.3 $ 153.9 $ 142.4 $ 114.7 $ 104.9
Assumed new business production 37.9 36.0 43.2 24.7 26.0
48
37
Quarterly Data (unaudited)
Years Ended December 31
(dollars in thousands, except per share data)
First Second Third Fourth
1996
Total revenues $ 200,422 $ 201,491 $ 192,038 $ 236,078
Income before income taxes and minority interest 17,028 21,608 20,679 27,746
Net income $ 10,536 $ 13,460 $ 12,617 $ 18,459
Outstanding common shares 16,824,396 16,829,796 16,833,896 16,976,896
Net income per share $ .62 $ .79 $ .74 $ 1.08
Market price of common stock:
Quarter end 36 5/8 37 3/4 43 7/8 47 1/8
Common stock price, high 41 1/8 41 5/8 44 1/4 49 1/2
Common stock price, low 33 7/8 36 5/8 36 7/8 43 1/4
1995
Total revenues $ 160,509 $ 151,199 $ 163,693 $ 192,731
Income before income taxes and minority interest 14,547 18,157 17,432 24,483
Net income $ 8,888 $ 11,550 $ 11,216 $ 15,637
Outstanding common shares 16,820,396 16,820,396 16,820,396 16,821,896
Net income per share $ 0.53 $ 0.69 $ 0.66 $ 0.92
Market price of common stock:
Quarter end 27 1/8 28 5/8 35 1/4 36 5/8
Common stock price, high 27 7/8 29 35 1/4 36 5/8
Common stock price, low 23 7/8 24 7/8 28 30 1/4
Reinsurance Group of America, Incorporated common stock is traded on the New
York Stock Exchange (NYSE) under the symbol "RGA." There were 147
stockholders of record of RGA's common stock on March 3, 1997.
49
38
MANAGEMENT AND SHAREHOLDERS' INFORMATION
Directors and Executive Officers
J. Cliff Eason
Director
President and CEO,
Southwestern Bell Communications, Inc.
Bernard A. Edison
Former President,
Edison Brothers Stores, Inc.
Dennis F. Hardcastle
Director
Retired President, Group America Insurance
Richard A. Liddy
Chairman of the Board and Director
William A. Peck, M.D.
Director
Executive Vice Chancellor for Medical Affairs
and Dean of the School of Medicine,
Washington University in St. Louis
Leonard M. Rubenstein
Treasurer and Director
Chairman, CEO and CIO, Conning Corporation
William P. Stiritz
Director
Chairman of the Board, President and Chief
Executive Officer, Ralston Purina Company
H. Edwin Trusheim
Director
Retired Chairman of the Board,
General American Life Insurance Company
A. Greig Woodring
President, Chief Executive Officer and Director
David B. Atkinson
Executive Vice President
and Chief Operating Officer
Bruce E. Counce
Executive Vice President and
Chief Corporate Operating Officer
Jack B. Lay
Executive Vice President and
Chief Financial Officer
Graham S. Watson
Executive Vice President and
Chief Marketing Officer
Brendan J. Galligan
Senior Vice President
Asia Pacific Division
Joel S. Iskiwitch
Senior Vice President
Accident and Health Division
Paul Nitsou
Senior Vice President
Market Development Division
Paul A. Schuster
Senior Vice President
U.S. Division
Kenneth D. Sloan
Senior Vice President
U.S. Facultative Division
Matthew P. McCauley
General Counsel and Secretary
Shareholder Information
Annual Meeting:
The annual meeting of the shareholders will be held
Thursday, May 15, 1997 at 4:00 p.m.
at the Ritz-Carlton Hotel
100 Carondelet Plaza
St. Louis, MO
Transfer Agent:
Boatmen's Trust Company
St. Louis, Missouri
Independent Auditors:
KPMG Peat Marwick LLP
Annual Report Form 10-K:
Reinsurance Group of America, Incorporated
files with the Securities and Exchange Commission
an Annual Report (Form 10-K). Shareholders may obtain
a copy of the Form 10-K report without charge by writing to:
Jack B. Lay
Chief Financial Officer
660 Mason Ridge Center Drive
St. Louis, MO 63141
Or, shareholders may request financial reports through
our Internet site at http://www.rgare.com.
50