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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
--- Act of 1934 for the fiscal year ended December 31, 1997
Transition report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
Commission file number 1-11848
REINSURANCE GROUP OF AMERICA, INCORPORATED
(Exact name of registrant as specified in its charter)
Missouri 43-1627032
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
660 Mason Ridge Center Drive, St. Louis, Missouri 63141
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 453-7300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $0.01 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on March 1,
1998, as reported on the New York Stock Exchange was approximately
$460,325,743.
As of March 1, 1998, Registrant had outstanding 25,225,480 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Shareholders for the year ended
December 31,1997 ("the Annual Report") are incorporated by reference in Part
I of this Form 10-K. Certain portions of the Definitive Proxy Statement in
connection with the 1998 Annual Meeting of Shareholders ("the Proxy
Statement") which will be filed with the Securities and Exchange Commission
not later than 120 days after the Registrant's fiscal year ended December 31,
1997, are incorporated by reference in Part III of this Form 10-K.
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REINSURANCE GROUP OF AMERICA, INCORPORATED
Form 10-K
YEAR ENDED DECEMBER 31, 1997
INDEX
Item Page
Number of this Form
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Part I
1. Business 3
2. Properties 19
3. Legal Proceedings 20
4. Submission of Matters to a Vote of Security Holders 20
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 20
6. Selected Financial Data 21
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
7A. Quantitative and Qualitative Disclosures about Market Risk 21
8. Financial Statements and Supplementary Data 21
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 21
Part III
10. Directors and Executive Officers of the Registrant 21
11. Executive Compensation 23
12. Security Ownership of Certain Beneficial Owners and Management 23
13. Certain Relationships and Related Transactions 23
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 23
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Item 1. BUSINESS
A. Overview
Reinsurance Group of America, Incorporated (RGA) is an insurance holding
company formed December 31, 1992. Approximately 64% of RGA's outstanding
shares are indirectly owned by General American Life Insurance Company
(General American) at December 31, 1997. The consolidated financial
statements include the assets, liabilities, and results of operations of RGA;
RGA Reinsurance Company (RGA Reinsurance); RGA Australian Holdings PTY,
Limited (Australian Holdings); RGA Reinsurance Company (Barbados) Ltd. (RGA
Barbados); RGA Insurance Company (Bermuda) Ltd. (RGA Bermuda); RGA
International, Ltd. (RGA International), formerly G.A. Canadian Holdings,
Ltd., a Canadian marketing and insurance holding company; RGA Sudamerica,
S.A., a Chilean holding company; RGA Holdings Limited (U.K.) (RGA UK), a
United Kingdom holding company; and Manantial Seguros de Vida, S.A.
(Manantial) now know as General American Argentina Seguros de Vida, S.A., an
Argentine life insurance company; along with the subsidiaries of RGA
Reinsurance, Australian Holdings, RGA International, RGA Sudamerica, S.A.,
and RGA UK subject to an ownership position of fifty percent or more
(collectively, the Company).
The Company is primarily engaged in life reinsurance, accident and
health reinsurance, and international life and disability on a direct and
reinsurance basis. In addition, the Company provides reinsurance of
non-traditional business including asset-intensive products and financial
reinsurance. RGA and its predecessor, the Reinsurance Division of General
American, have been engaged in the business of life reinsurance since 1973.
As of December 31, 1997, the Company had approximately $4.7 billion in
consolidated assets.
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.
Life reinsurance primarily refers to reinsurance of individual term life
insurance policies, whole life insurance policies, universal life insurance
policies, and joint and survivor insurance policies. Ceding companies
typically contract with more than one company to reinsure their business.
Reinsurance may be written on an indemnity or an assumption basis. Indemnity
reinsurance does not discharge a ceding company from liability to the
policyholder; a ceding company is required to pay the full amount of its
insurance obligations regardless of whether it is entitled or able to receive
payments from its reinsurers. In the case of assumption reinsurance, the
ceding company is discharged from liability to the policyholder, with such
liability passed to the reinsurer. Reinsurers also may purchase reinsurance,
known as retrocession reinsurance, to cover their own risk exposure.
Reinsurance companies enter into retrocession agreements for reasons similar
to those that cause primary insurers to purchase reinsurance.
Reinsurance may be written on a facultative basis or an automatic treaty
basis. Facultative reinsurance is individually underwritten by the reinsurer
for each policy to be reinsured, with the pricing and other terms established
at the time the policy is underwritten based upon rates negotiated in
advance. Facultative reinsurance normally is purchased by insurance
companies for medically impaired lives, unusual risks, or liabilities in
excess of binding limits on their automatic treaties.
An automatic reinsurance treaty provides that the ceding company will
cede risks to a reinsurer on specified blocks of business where the
underlying policies meet the ceding company's underwriting criteria. In
contrast to facultative reinsurance, the reinsurer does not approve each
individual risk. Automatic reinsurance treaties generally provide that the
reinsurer will be liable for a portion of the risk associated with the
specified policies written by the ceding company. Automatic reinsurance
treaties specify the ceding company's binding limit, which is the maximum
amount of risk on a given life that can be ceded automatically and that the
reinsurer must accept. The binding limit may be stated either as a multiple
of the ceding company's retention or as a stated dollar amount.
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Facultative and automatic reinsurance may be written as yearly renewable
term, coinsurance, or modified coinsurance, which vary with the type of risk
assumed and the manner of pricing the reinsurance. Under a yearly renewable
term treaty, the reinsurer assumes only the mortality or morbidity risk.
Under a coinsurance arrangement, depending upon the terms of the contract,
the reinsurer may share in the risk of loss due to mortality or morbidity,
lapses, and the investment risk, if any, inherent in the underlying policy.
Modified coinsurance differs from coinsurance only in that the assets
supporting the reserves are retained by the ceding company while the risk is
transferred to the reinsurer.
Generally, the amount of life reinsurance ceded under facultative and
automatic reinsurance agreements is stated on either an excess or a quota
share basis. Reinsurance on an excess basis covers amounts in excess of an
agreed-upon retention limit. Retention limits vary by ceding company and
also vary by age and underwriting classification of the insured, product, and
other factors. Under quota share reinsurance, the ceding company states its
retention in terms of a fixed percentage of the risk that will be retained,
with the remainder up to the maximum binding limit to be ceded to one or more
reinsurers.
Reinsurance agreements, whether facultative or automatic, may provide
for recapture rights on the part of the ceding company. Recapture rights
permit the ceding company to reassume all or a portion of the risk formerly
ceded to the reinsurer after an agreed-upon period of time (generally 10
years), subject to certain other conditions. Recapture of business
previously ceded does not affect premiums ceded prior to the recapture of
such business.
The potential adverse effects of recapture rights are mitigated by the
following factors: (i) recapture rights vary by treaty and the risk of
recapture is a factor which is taken into account when pricing a reinsurance
agreement; (ii) ceding companies generally may exercise their recapture
rights only to the extent they have increased their retention limits for the
reinsured policies; and (iii) ceding companies generally must recapture all
of the policies eligible for recapture under the agreement in a particular
year if any are recaptured, which prevents a ceding company from recapturing
only the most profitable policies. In addition, when a ceding company
increases its retention and recaptures reinsured policies, the reserves
maintained by the reinsurer to support the recaptured portion of the policies
are released by the reinsurer.
B. Corporate Structure
RGA is a holding company, the principal assets of which consist of the
common stock of RGA Reinsurance and RGA International, as well as investments
in several other subsidiaries or joint ventures. The primary source of funds
for RGA to make dividend distributions is dividends paid to RGA by RGA
Reinsurance and RGA International, securities maintained in its investment
portfolio, and its ability to raise additional capital. RGA Reinsurance's
principal source of funds is derived from current operations. RGA
International's principal source of funds is dividends on its equity interest
in RGA Canada Management Company, Ltd. (RGA Canada Management), whose
principal source of funds is dividends paid by RGA Life Reinsurance Company
of Canada (RGA Canada). RGA Canada's principal source of funds is derived
from current operations.
The U.S. life reinsurance business represented 66.3% of the Company's
business as measured by 1997 net premiums and has experienced significant
growth since inception through 1997. The U.S. operations market life
reinsurance, reinsurance of asset-intensive products, and financial
reinsurance, through RGA Reinsurance, primarily to the largest U.S. life
insurance companies. RGA Reinsurance, a Missouri domiciled stock life
insurance company, is wholly-owned by RGA. As of December 31, 1997, RGA
Reinsurance had regulatory capital and surplus of $249.3 million.
The Company's Canadian life reinsurance business, which represented
10.0% of the Company's business as measured by 1997 net premiums, is
conducted primarily through RGA Canada, an indirect subsidiary of RGA
International. RGA International, a wholly-owned subsidiary of RGA, is a New
Brunswick, Canada, marketing and insurance holding company which owns 100% of
RGA Canada Management, also a New Brunswick, Canada, holding company, which
in turn owns 100% of RGA Canada. During 1997, RGA International issued
250,000 Class A Preferred Shares, Series I to RGA for a cash consideration of
$17.4 million. The funds were contributed to RGA Canada Management in
exchange for 250,000 Class A Preferred Shares, Series I. RGA Canada
Management then contributed the same amount to RGA Canada in exchange for
500,000 newly issued Common Shares. The Canadian operations provide insurers
with traditional reinsurance as well as assistance with capital management
activity. As of December 31, 1997, RGA Canada had regulatory capital and
surplus of $64.5 million.
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The Company's accident and health reinsurance business, which
represented 10.9% of the Company's business as measured by 1997 net premiums,
is assumed by RGA Reinsurance. As of December 31, 1997, RGA Reinsurance
owned 51% of Fairfield Management Group, Inc. (Fairfield), formerly known as
Great Rivers Holding Company, which in turn owns 100% of Great Rivers
Reinsurance Management, Inc. (Great Rivers Reinsurance Management). Great
Rivers Reinsurance Management performs underwriting and administrative
services for the accident and health business reinsured by RGA Reinsurance.
In addition, Fairfield owns 100% of Reinsurance Partners, Inc. (Re Partners),
formerly known as Adrian Baker Reinsurance Intermediaries Inc. Fairfield
also owns 80% of RGA U.K. Underwriting Agency Limited (RGA UK Underwriting),
a contact office for RGA Reinsurance in the United Kingdom. Management of
Fairfield owns the remaining 49% of Fairfield. Management of RGA UK
Underwriting owns the remaining 20% of RGA UK Underwriting. RGA and
management have granted each other certain rights of first refusal with
respect to the stock of Fairfield. In December 1997, RGA Reinsurance was
notified by management of Fairfield of their intent to exercise their put
options for their 49% minority ownership interest as of January 1, 1998.
Based upon the Company's decision to cease marketing accident and health
business, the Company established a reserve of approximately $3,000,000
against the intangible asset that will arise related to the excess of the
purchase price over the fair value of net assets acquired for this put
option. See Item 13 "Certain Relationships and Related Transactions."
Business in the other international segment represented 12.8% of the
Company's business as measured by 1997 net premiums. The other international
operations include results from the Latin American operations, Asia Pacific
operations, and Market Development operations. Other international business
includes direct and reinsurance business from a joint venture and
subsidiaries in Latin America, Australia, and the United Kingdom, as well as
traditional reinsurance of life and health products through RGA Reinsurance.
Latin American direct business is comprised primarily of Chilean single
premium annuities and Argentine group life and individual universal life
products. RGA Sudamerica, S.A., which is 99% owned by RGA and 1% owned by
RGA Barbados, is a Chilean holding company which currently has a 50%
investment in BHIF America Seguros de Vida, S.A. (BHIF America), and a 99%
investment in RGA Reinsurance Company Chile S.A. (RGA Chile), (the remaining
1% of RGA Chile is owned by RGA Barbados). BHIF America sells Chilean
insurance products, including single premium immediate annuities, credit
life, and disability insurance. In July 1996, RGA created RGA Chile, which
is licensed to assume life reinsurance business in Chile. To date, all
business assumed by RGA Chile was ceded from BHIF America. RGA also operates
in Argentina through Manantial, a subsidiary which is 99% owned by RGA and 1%
owned by RGA Sudamerica S.A. Manantial markets and sells individual, group,
credit and universal life and disability insurance. RGA Reinsurance also
provides life and certain forms of disability reinsurance to life insurance
companies throughout the world.
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.
RGA Barbados was formed and capitalized in 1995, providing reinsurance
for a portion of certain business assumed by RGA Reinsurance from the ITT
Lyndon Life Insurance Company and certain other reinsurance business. During
1996, RGA also formed a subsidiary in Bermuda, RGA Bermuda, which had not
commenced any business as of December 31, 1997.
Historical Review
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On December 31, 1992, RGA Canada assumed the General American
Reinsurance Division's Canadian business by means of a retrocession
reinsurance agreement with General American (the Canadian Retrocession
Agreement). On the same date, RGA Canada retroceded back to the Reinsurance
Division pursuant to a retrocession agreement with General American amounts
assumed by RGA Canada pursuant to the Canadian Retrocession Agreement which
exceeded RGA Canada's retention limits (the RGA Canada Retrocession
Agreement). On December 31, 1992, the Reinsurance Division also made a C$10
million capital contribution to RGA Canada through RGA International and
transferred to RGA Canada cash equal to the liabilities assumed by RGA Canada
pursuant to the Canadian Retrocession Agreement, net of amounts retroceded
back to the Reinsurance Division pursuant to the RGA Canada Retrocession
Agreement.
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On January 1, 1993, RGA Reinsurance entered into a retrocession
reinsurance agreement with General American (known as the U.S. Retrocession
Agreement and, together with the Canadian Retrocession Agreement, known as
the Retrocession Agreements) pursuant to which all of the business of the
General American Reinsurance Division (including the Canadian business
retroceded back to the Reinsurance Division by RGA Canada pursuant to the RGA
Canada Retrocession Agreement) was transferred to RGA Reinsurance, net of the
financial effects of all other retrocession agreements of the Reinsurance
Division. As of January 1, 1993, the Reinsurance Division also made a $10
million capital contribution to RGA Reinsurance and transferred to RGA
Reinsurance investment assets equal to the liabilities assumed by RGA
Reinsurance pursuant to the U.S. Retrocession Agreement. The remainder of
the investment portfolio was transferred by the Reinsurance Division to RGA
in April 1993, along with the stock of RGA Reinsurance and RGA International
to RGA. As of the first day of June 1993, all of the full time employees in
the Reinsurance Division transferred to RGA Reinsurance.
The foregoing transactions, including the transfer to RGA of the stock
of RGA Reinsurance and RGA International, the execution of the Retrocession
Agreements, the transfers of investment assets to RGA and RGA Reinsurance,
and the capital contributions to RGA Canada and RGA Reinsurance, are
hereinafter collectively referred to as the "Restructuring."
Intercorporate Relationships
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As a result of the Restructuring, the Company has all the economic
benefits and risks of the reinsurance agreements ceded by General American
pursuant to the Retrocession Agreements, although General American currently
remains the contracting party with some of the underlying ceding companies.
RGA operates on a stand-alone basis, however General American or its
affiliates continue to provide certain administrative and other services to
RGA and RGA Reinsurance pursuant to separate administrative services
agreements, and provide investment management and advisory services to RGA,
RGA Reinsurance, Australian Holdings, RGA Barbados, and RGA Canada pursuant
to separate agreements.
The transfer of the Reinsurance Division to RGA has had no material
effect on the existing reinsurance business of the Reinsurance Division.
Some business of RGA Reinsurance continues to be written through General
American pursuant to a marketing agreement between RGA Reinsurance and
General American. Under the marketing agreement, General American has agreed
to amend and terminate its existing assumed and retroceded reinsurance
agreements pursuant to the Retrocession Agreements only at the direction of
RGA Reinsurance, thus giving RGA Reinsurance the contractual right to direct
future changes to existing reinsurance agreements. Further, General American
has agreed, during the term of the marketing agreement, to enter into
additional reinsurance agreements under which it is the reinsurer at, and
only upon, the direction of RGA Reinsurance. Therefore, until January 1,
2000, the date on which the marketing agreement expires, General American
will be precluded from competing with the Company without the Company's
consent, unless RGA Reinsurance elects to terminate the marketing agreement
earlier. Pursuant to the U.S. Retrocession Agreement, any new reinsurance
contracts will automatically be retroceded to RGA Reinsurance. Although
primary insurers must look to General American for payment in the first
instance with respect to reinsurance business written through General
American, the Company will be ultimately liable to General American with
respect to such reinsurance. 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 reinsurance
treaties written by General American for the benefit of RGA Reinsurance. 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. As of December 31, 1997, eleven
companies had not novated their business directly to RGA Reinsurance, which
represented approximately 2.4% of consolidated net premiums.
Ratings
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The ability of RGA Reinsurance to write reinsurance for its own account
will depend on its financial condition and its ratings. A.M. Best, an
independent insurance company rating organization, has rated RGA Reinsurance
"A+." A.M. Best's ratings are based upon an insurance company's ability to
pay policyholder obligations and are not directed toward the protection of
investors. A.M. Best's ratings for insurance companies currently range from
"A++" to "F", and some companies are not rated. Publications of A.M. Best
indicate that "A+" and "A++" ratings are assigned to those companies which,
in A.M. Best's opinion, have achieved superior overall
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performance when compared to the standards established by A.M. Best and
generally have demonstrated a strong ability to meet their policyholder
obligations over a long period of time. In evaluating a company's financial
strength and operating performance, A.M. Best reviews the company's
profitability, leverage, and liquidity as well as its spread of risk, the
quality and appropriateness of its reinsurance program, the quality and
diversification of its assets, the adequacy of its policy or loss reserves,
the adequacy of its surplus, its capital structure, management's experience
and objectives, and policyholders' confidence.
Additionally, RGA Reinsurance has received an "AA" rating from Standard
& Poor's and an "A1" rating from Moody's Investor Services (Moody's) for
claims-paying ability. These ratings represent Standard & Poor's (S&P's)
third highest rating and Moody's fifth highest rating. RGA has an "A"
long-term debt rating from S&P and "A3" long term debt rating from Moody's.
Regulation
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RGA Reinsurance, RGA Canada, BHIF America, RGA Chile, Manantial, RGA
Barbados, RGA Bermuda, RGA Australia, and RGA UK are regulated by authorities
in Missouri, Canada, Chile, Argentina, Barbados, Bermuda, Australia, and the
United Kingdom, respectively. RGA Reinsurance is subject to regulations in
the other jurisdictions in which it is licensed or authorized to do business.
Insurance laws and regulations, among other things, establish minimum capital
requirements and limit the amount of dividends, distributions, and
intercompany payments affiliates can make without prior regulatory approval.
Missouri law imposes restrictions on the amounts and type of investments
insurance companies like RGA Reinsurance may hold.
Guidelines on Minimum Continuing Capital and Surplus Requirements
(MCCSR) became effective for Canadian insurance companies in December 1992,
and Risk-Based Capital (RBC) guidelines promulgated by the National
Association of Insurance Commissioners (NAIC) became effective for U.S.
companies in 1993. The MCCSR risk-based capital guidelines, which are
applicable to RGA Canada, prescribe surplus requirements and take into
account both assets and liabilities in establishing solvency margins. The
RBC guidelines, applicable to RGA Reinsurance, similarly identify minimum
capital requirements based upon business levels and asset mix. Both RGA
Canada and RGA Reinsurance maintain capital levels in excess of the amounts
required by the applicable guidelines. Regulations in Chile, Argentina,
Australia, Barbados and Bermuda, also require certain minimum capital levels,
and subject the companies operating there to oversight by the applicable
regulatory bodies. The Company's subsidiaries in Chile, Argentina,
Australia, Barbados, and Bermuda meet the minimum capital requirements in
their respective jurisdiction. The Company cannot predict the effect that
any proposed or future legislation or rule-making in the countries in which
the Company operates may have on the financial condition or operations of the
Company or its subsidiaries.
RGA is regulated in Missouri as an insurance holding company. The
Company is subject to regulation under the insurance and insurance holding
company statutes of Missouri. The Missouri insurance holding company laws
and regulations generally require insurance and reinsurance subsidiaries of
insurance holding companies to register with the Missouri Department of
Insurance and to file with the Missouri Department of Insurance certain
reports describing, among other information, their capital structure,
ownership, financial condition, certain intercompany transactions, and
general business operations. The Missouri insurance holding company statutes
and regulations also require prior approval of, or in certain circumstances,
prior notice to the Missouri Department of Insurance of certain material
intercompany transfers of assets, as well as certain transactions between
insurance companies, their parent companies and affiliates.
Under Missouri insurance laws and regulations, unless (i) certain
filings are made with the Missouri Department of Insurance, (ii) certain
requirements are met, including a public hearing, and (iii) approval or
exemption is granted by the Missouri Director of Insurance, no person may
acquire any voting security or security convertible into a voting security of
an insurance holding company, such as RGA, which controls a Missouri
insurance company, or merge with such a holding company, if as a result of
such transaction such person would "control" the insurance holding company.
"Control" is presumed to exist under Missouri law if a person directly or
indirectly owns or controls 10% or more or the voting securities of another
person.
Current Missouri law (applicable to RGA and RGA Reinsurance) permits
the payment of dividends or distributions which, together with dividends or
distributions paid during the preceding 12 months, do not exceed the greater
of (i) 10% of statutory capital and surplus as of the preceding December 31
or (ii) statutory net gain from
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operations for the preceding calendar year. Any proposed dividend in excess
of this amount is considered an "extraordinary dividend" and may not be paid
until it has been approved, or a 30-day waiting period has passed during
which it has not been disapproved, by the Missouri Director of Insurance. In
addition, dividends may be paid only to the extent the insurer has earned
surplus (as opposed to contributed surplus). For example, the maximum amount
available for payment of dividends in 1998 by RGA Reinsurance under Missouri
law, without the prior approval of the Missouri Director of Insurance, is
$24.9 million.
In contrast to current Missouri law, the NAIC Model Insurance Holding
Company Act (the Model Act) defines an extraordinary dividend as a dividend
or distribution which, together with dividends or distributions paid during
the preceding 12 months, exceeds the lesser of (i) 10% of statutory capital
and surplus as of the preceding December 31 or (ii) statutory net gain from
operations for the preceding calendar year. The Company is unable to predict
whether, when, or in what form Missouri will enact a new measure for
extraordinary dividends. The maximum amount available for payment on
dividends in 1998 by RGA Reinsurance under the Model Act without prior
approval of the Missouri Director of Insurance would have been $12.1 million
at December 31, 1997.
In addition to the foregoing, Missouri insurance laws and regulations
require that the statutory surplus of RGA Reinsurance following any dividend
or distribution be reasonable in relation to its outstanding liabilities and
adequate to meet its financial needs. The Missouri Director of Insurance may
bring an action to enjoin or rescind the payment of a dividend or
distribution by RGA Reinsurance that would cause its statutory surplus to be
inadequate under the standards of Missouri.
There are no express restrictions on the declaration of dividends by RGA
International, RGA Canada Management, or RGA Canada under Canadian insurance
laws and regulations. However, RGA Canada must give notice of any dividend
to the Superintendent of Financial Institutions of Canada at least 10 days
prior to the date of payment. In addition, the Canadian MCCSR guidelines
consider both assets and liabilities in establishing solvency margins, the
effect of which could limit the maximum amount of dividends that may be paid
by RGA Canada. RGA Canada's ability to declare and pay dividends in the
future will be affected by its continued ability to comply with such
guidelines. The maximum amount available for payment of dividends by RGA
Canada to RGA Canada Management under the Canadian MCCSR guidelines was $15.5
million at December 31, 1997.
The insurance laws and regulations, as well as the level of supervisory
authority that may be exercised by the various insurance departments, vary by
jurisdiction, but generally grant broad powers to supervisory agencies or
regulators to examine and supervise insurance companies and insurance holding
companies with respect to every significant aspect of the conduct of the
insurance business, including approval or modification of contractual
arrangements. These laws and regulations generally require insurance
companies to meet certain solvency standards and asset tests, to maintain
minimum standards of business conduct, and to file certain reports with
regulatory authorities, including information concerning their capital
structure, ownership, and financial condition, and subject insurers to
potential assessments for amounts paid by guarantee funds.
RGA Reinsurance and RGA Canada are required to file annual or quarterly
statutory financial statements in each jurisdiction in which they are
licensed. Additionally, RGA Reinsurance and RGA Canada are subject to
periodic examination by the insurance departments of the jurisdictions in
which each is licensed, authorized, or accredited. The most recent
examination of RGA Reinsurance by the Missouri Department of Insurance was
for the year ended December 31, 1995. The result of this examination
contained no material adverse findings. RGA Canada, which was formed in
1992, was reviewed by the Canadian Superintendent of Financial Institutions
during 1997. The result of this examination contained no material adverse
findings.
RGA Australia is required to file a quarterly statistical return and
annual financial statement with the Insurance and Superannuation Commission
of Australia (ISC). RGA Australia is subject to additional reviews by the
ISC on an as required basis. In August 1997, RGA Australia was reviewed by
the ISC with no material adverse findings.
RGA Barbados is required to file an annual financial statement with the
Office of the Supervisor of Insurance of Barbados.
Manantial as a direct life insurance company is required to file annual
and quarterly statutory financial statements in Argentina which are reviewed
by external auditors and filed with the Superintendencia de Seguros de
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la Nacion (Superintendencia-Argentina). Additionally, Manantial is subject
to periodic examination by the Superintendencia-Argentina. The most recent
examination by the Superintendencia-Argentina was in March 1997. The results
of this examination were discussed with management and all adjustments were
reflected during 1997.
BHIF America and RGA Chile are required to file annual and quarterly
regulatory financial statements in Chile which are reviewed by external
auditors annually and filed with the Superintendencia de Valores y Seguros de
Chile (Superintendencia-Chile). The most recent examination by the
Supeintendencia-Chile was during 1997. The result of this examination
contained no material adverse findings.
Although some of the rates and policy terms of U.S. direct insurance
agreements are regulated by state insurance departments, the rates, policy
terms, and conditions of reinsurance agreements generally are not subject to
regulation by any regulatory authority. However, the NAIC Model Law on
Credit for Reinsurance, which has been adopted in most states, impose certain
requirements for an insurer to take reserve credit for reinsurance ceded to a
reinsurer. Generally, the reinsurer is required to be licensed or accredited
in the insurer's state of domicile, or security must be posted for reserves
transferred to the reinsurer in the form of letter of credit or assets placed
in trust. The NAIC Life and Health Reinsurance Agreements Model Regulation,
which has been passed in most states, imposes additional requirements for
insurers to claim reserve credit for reinsurance ceded (excluding YRT
reinsurance and non-proportional reinsurance). These requirements include
bona fide risk transfer, an insolvency clause, written agreements, and filing
of reinsurance agreements involving in force business, among other things.
In the event of a default on any debt that may be incurred by RGA or the
bankruptcy, liquidation, or other reorganization of RGA, the creditors and
stockholders of RGA will have no right to proceed against the assets of RGA
Reinsurance, RGA Canada, or other insurance or reinsurance company
subsidiaries of RGA. If RGA Reinsurance were to be liquidated, such
liquidation would be conducted by the Missouri Director of Insurance as the
receiver with respect to such insurance company's property and business. If
RGA Canada were to be liquidated, such liquidation would be conducted
pursuant to the general laws relating to the winding-up of Canadian federal
companies. In both cases, all creditors of such insurance company,
including, without limitation, holders of its reinsurance agreements and, if
applicable, the various state guaranty associations, would be entitled to
payment in full from such assets before RGA, as a direct or indirect
stockholder, would be entitled to receive any distributions made to it prior
to commencement of the liquidation proceedings, and, if the subsidiary was
insolvent at the time of the distribution, shareholders of RGA might likewise
be required to refund dividends subsequently paid to them.
If RGA Australia were to be liquidated, such liquidation would be
conducted pursuant to the general laws relating to winding-up of Australian
insurance companies as prescribed in the Australian Life Insurance Act 1995
and conducted in accordance with the Corporations Law of the State or
internal territory under which RGA Australia was incorporated. The assets of
RGA Australia would then be applied by specific priority as specified in the
Corporations Law of the State.
Certain state legislatures have considered or enacted laws that alter,
and in many cases increase, state regulation of insurance holding companies.
In recent years, the NAIC and state legislators have begun re-examining
existing laws and regulations, specifically focusing on insurance company
investments and solvency issues, risk-based capital guidelines, intercompany
transactions in a holding company system, and rules concerning extraordinary
dividends.
Discussions continue in the Congress of the United States concerning the
future of the McCarran-Ferguson Act, which exempts the "business of
insurance" from most federal laws, including anti-trust laws, to the extent
such business is subject to state regulation. Judicial decisions narrowing
the definition of what constitutes the "business of insurance" and repeal or
modification of the McCarran-Ferguson Act may limit the ability of the
Company, and RGA Reinsurance in particular, to share information with respect
to matters such as rate-setting, underwriting, and claims management. It is
not possible to predict the effect of such decisions or change in the law on
the operation of the Company.
Competition
- -----------
Reinsurers compete on the basis of many factors, including financial
strength, pricing and other terms and conditions of reinsurance agreements,
reputation, service, and experience in the types of business underwritten.
The U.S. and Canadian life reinsurance markets are served by numerous
international and domestic reinsurance
9
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companies. The Company believes that RGA Reinsurance's primary competitors
in the U.S. life reinsurance market are currently Transamerica Occidental
Life Insurance Company, Swiss Re Life of America, Security Life of Denver,
Life Reassurance Corporation of America, and Lincoln National Corporation.
However, within the reinsurance industry, this can change from year to year.
The Company believes that RGA Canada's major competitors in the Canadian life
reinsurance market are Swiss Re Life Canada and Munich Reinsurance Company of
Canada.
The other international life operations compete with subsidiaries of
several U.S. individual and group life insurers and reinsurers and other
internationally-based insurers and reinsurers, some of which are larger and
have access to greater resources than the Company. Competition is primarily
on the basis of price, service, and financial strength.
Employees
- ---------
As of December 31, 1997, the Company had 379 employees located in the
United States, Canada, Argentina, Chile, the United Kingdom, Hong Kong,
Australia, and Japan. None of these employees are represented by a labor
union. The Company believes that employee relations at all of its
subsidiaries are good.
C. Industry Segments
The Company obtains substantially all of its revenues through
reinsurance agreements that cover a portfolio of life insurance products,
including term life, credit life, universal life, whole life, and joint and
last survivor (JLS) insurance, as well as annuities, financial reinsurance,
accident and health insurance, and direct premiums which include single
premium pension annuities and group life. Generally, the Company, through a
subsidiary, has provided reinsurance and to a lesser extent insurance for
mortality and morbidity risks associated with such products. With respect to
asset-intensive products, the Company has also provided reinsurance for
investment-related risks. RGA Reinsurance also writes a small amount of
primary insurance on General American directors and officers, and a small
amount of short term life insurance.
The Company's reinsurance and insurance operations are classified into
four main operational segments: U.S., Canadian, accident and health, and other
international. The U.S. operations provide life reinsurance and non-traditional
reinsurance to domestic clients. The Canadian operations provide insurers with
traditional reinsurance as well as assistance with capital management activity.
The accident and health operations include both domestic and international
reinsurance. Other international business includes direct and reinsurance
business from a joint venture and subsidiaries in Latin America, Australia, and
the United Kingdom, as well as reinsurance of life and health products through
RGA Reinsurance. Of the other international segment, 52.8% related to direct
insurance based on 1997 net premiums. Revenue, income (loss) before income
taxes and minority interest, assets, and aggregate depreciation and amortization
attributable to each industry segment for 1997, 1996, and 1995, are set forth in
Note 14 of Notes to Consolidated Financial Statements, which Note is hereby
incorporated by reference.
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The following table sets forth the Company's gross and net premiums from
new business and renewal business attributable to each of the industry
segments for the periods indicated:
New Business and Renewal Premiums by Segment
(dollars in millions)
Year Ended December 31
----------------------
1997 1996 1995
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
Gross Premiums:
New business:
U.S. operations $ 167.9 59.7 $142.9 65.6 $111.5 66.5
Canadian operations 20.6 7.3 14.7 6.7 9.8 5.8
Accident and health operations <F1> - - - - - -
Other international operations <F2> 92.7 33.0 60.3 27.7 46.4 27.7
-------- ----- ------ ----- ------ -----
Subtotal 281.2 100.0 217.9 100.0 167.7 100.0
Renewals:
U.S. operations 519.3 64.3 477.7 71.7 403.4 69.5
Canadian operations 84.8 10.5 66.8 10.0 55.2 9.5
Accident and health operations <F1> 187.5 23.2 112.3 16.8 107.8 18.6
Other international operations <F2> 16.0 2.0 9.9 1.5 14.2 2.4
-------- ----- ------ ----- ------ -----
Subtotal 807.6 100.0 666.7 100.0 580.6 100.0
Total:
U.S. operations 687.2 63.1 620.6 70.2 514.9 68.8
Canadian operations 105.4 9.7 81.5 9.2 65.0 8.7
Accident and health operations <F1> 187.5 17.2 112.3 12.7 107.8 14.4
Other international operations <F2> 108.7 10.0 70.2 7.9 60.6 8.1
-------- ----- ------ ----- ------ -----
Total $1,088.8 100.0 $884.6 100.0 $748.3 100.0
======== ===== ====== ===== ====== =====
Net Premiums:
New Business:
U.S. operations $ 95.2 46.8 $102.9 58.6 $ 66.4 54.9
Canadian operations 16.4 8.1 14.4 8.2 8.4 6.9
Accident and health operations <F1> - - - - - -
Other international operations <F2> 91.7 45.1 58.3 33.2 46.2 38.2
-------- ----- ------ ----- ------ -----
Subtotal 203.3 100.0 175.6 100.0 121.0 100.0
Renewals:
U.S. operations 459.1 72.6 383.5 76.8 347.7 77.4
Canadian operations 67.2 10.6 48.7 9.8 40.9 9.1
Accident and health operations <F1> 90.7 14.4 57.2 11.4 47.8 10.7
Other international operations <F2> 15.2 2.4 9.9 2.0 12.6 2.8
-------- ----- ------ ----- ------ -----
Subtotal 632.2 100.0 499.3 100.0 449.0 100.0
Total:
U.S. operations $ 554.3 66.3 $486.4 72.1 $414.1 72.7
Canadian operations 83.6 10.0 63.1 9.3 49.3 8.6
Accident and health operations <F1> 90.7 10.9 57.2 8.5 47.8 8.4
Other international operations <F2> 106.9 12.8 68.2 10.1 58.8 10.3
-------- ----- ------ ----- ------ -----
Total $ 835.5 100.0 $674.9 100.0 $570.0 100.0
======== ===== ====== ===== ====== =====
<FN>
<F1> The term "new business" is not applicable to the accident and health
segment, which generally writes reinsurance agreements with terms of
one year.
<F2> Direct single premium annuities in Chile are reported as new business
in the other international segment.
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The following table sets forth selected information concerning assumed
reinsurance business in force for the Company's U.S., Canadian and other
international segments for the indicated periods. (The term "in force"
refers to face amounts or net amounts at risk and is not applicable to the
accident and health segment.)
Reinsurance Business In Force by Segment
(dollars in billions)
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
U.S. operations $171.7 75.5 $137.3 81.6 $127.9 83.1
Canadian operations 27.7 12.2 22.7 13.4 17.3 11.2
Other international operations 27.9 12.3 8.3 5.0 8.7 5.7
------ ----- ------ ----- ------ -----
Total $227.3 100.0 $168.3 100.0 $153.9 100.0
====== ===== ====== ===== ====== =====
The following table sets forth selected information concerning assumed
new business volume for the Company's U.S., Canadian, and other international
operations for the indicated periods. (The term "volume" refers to face
amounts or net amounts at risk and is not applicable to the accident and
health segment.)
New Business Volume by Segment
(dollars in billions)
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
U.S. operations $50.2 66.1 $27.0 71.2 $27.7 76.9
Canadian operations 8.0 10.5 6.9 18.2 4.2 11.7
Other international operations 17.7 23.4 4.0 10.6 4.1 11.4
----- ----- ----- ----- ----- -----
Total $75.9 100.0 $37.9 100.0 $36.0 100.0
===== ===== ===== ===== ===== =====
Reinsurance business in force reflects the addition or acquisition of
new reinsurance business, offset by terminations (e.g., voluntary surrenders
of underlying life insurance policies, lapses of underlying policies, deaths
of insureds, the exercise of recapture options, changes in foreign exchange,
and any other changes in the amount of insurance in force). As a result of
terminations, assumed in force amounts at risk of $16.9 billion, $23.5
billion, and $24.5 billion were released in 1997, 1996, and 1995,
respectively.
U.S. Operations
- ---------------
General
The Company's U.S. life reinsurance business, which totaled 66.3%,
72.1%, and 72.7%, of the Company's net premiums in 1997, 1996, and 1995,
respectively, consists of the reinsurance of various types of life insurance
products. This business has been accepted under many different rate scales,
with rates often tailored to suit the underlying product and the needs of the
ceding company. Premiums typically vary for smokers and non-smokers, males
and females, and may include a preferred underwriting class discount.
Regardless of the premium mode for the underlying primary insurance,
reinsurance premiums are generally paid annually. This business is made up
of facultative and automatic treaty business.
In addition, several of the Company's U.S. clients have purchased life
insurance policies insuring the lives of their executives. These policies
have generally been issued to fund deferred compensation plans and have been
reinsured with the Company. As of December 31, 1997, reinsurance of such
policies was reflected in interest sensitive contract reserves of
approximately $775.5 million and policy loans of $480.2 million.
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Facultative Business
The U.S. facultative reinsurance operation involves the assessment of
the risks inherent in (i) multiple impairments, such as heart disease, high
blood pressure, and diabetes; (ii) cases involving large policy face amounts;
and (iii) financial risk cases, i.e., cases involving policies
disproportionately large in relation to the financial characteristics of the
proposed insured. The U.S. operations' marketing efforts have focused on
developing facultative relationships with client companies because management
believes facultative reinsurance represents a substantial segment of the
reinsurance activity of many large insurance companies and has been an
effective means of expanding the U.S. operations' automatic business. In
1997, 1996, and 1995, approximately 39.6%, 39.2%, and 38.3% respectively, of
the U.S. gross premiums were written on a facultative basis. The U.S.
operations have emphasized personalized service and prompt response to
requests for facultative risk assessment.
Only a portion of approved facultative applications result in paid
reinsurance. This is because applicants for impaired risk policies often
submit applications to several primary insurers, which in turn seek
facultative reinsurance from several reinsurers; ultimately, only one
insurance company and one reinsurer are likely to obtain the business. The
U.S. operations track the percentage of declined and placed facultative
applications on a client-by-client basis and generally work with clients to
seek to maintain such percentages at levels the U.S. operations deem
acceptable.
Mortality studies by RGA Reinsurance have shown that the U.S.
operations' facultative mortality experience is comparable to its automatic
mortality experience relative to expected mortality rates. Because the U.S.
operations apply its underwriting standards to each application submitted to
it facultatively, the U.S. operations generally do not require ceding
companies to retain any portion of the underlying risk when business is
written on a facultative basis.
Automatic Business
Automatic business, including financial reinsurance treaties, is
generated pursuant to treaties which generally require that the underlying
policies meet the ceding company's underwriting criteria, although a number
of such policies may be rated substandard. In contrast to facultative
reinsurance, reinsurers do not engage in underwriting assessments of the
risks assumed through an automatic treaty. Automatic business tends to be
very price-competitive; however, clients are likely to give favorable
consideration to their existing reinsurers.
Because RGA Reinsurance does not apply its underwriting standards to
each policy ceded to it under automatic treaties, the U.S. operations
generally require ceding companies to keep their full retention when business
is written on an automatic basis, thereby increasing the ceding companies'
incentives to underwrite risks with due care and, when appropriate, to
contest claims diligently.
Non-traditional Business
The Company also provides non-traditional reinsurance of asset-intensive
products and financial reinsurance. Asset-intensive business includes the
reinsurance of stable value products, corporate-owned and bank-owned life
insurance, and annuities. The Company earns investment income on the
deposits underlying the asset-intensive products which is largely offset by
earnings credited and paid to the ceding companies. Financial reinsurance
assists ceding companies in meeting applicable regulatory requirements and
enhances ceding companies' financial strength and regulatory surplus
position. The Company provides ceding companies financial reinsurance by
committing cash or assuming insurance liabilities. Generally, such amounts
are offset by receivables from ceding companies which are supported by the
future profits from the reinsured block of business. The Company earns a
return based on the amount of outstanding reinsurance.
Customer Base
The U.S. reinsurance operation markets life reinsurance primarily to the
largest U.S. life insurance companies and currently has treaties with most of
the top 100 companies. These treaties generally are terminable by either
party on 90 days written notice, but only with respect to future new
business; existing business generally is not terminable, unless the
underlying policies terminate or are recaptured. In 1997, 32 clients had
annual gross
13
14
premiums of $5 million or more and the aggregate gross premiums from these
clients represented approximately 76.7% of 1997 U.S. life gross premiums.
In 1997, no U.S. client accounted for more than 10% of the Company's
consolidated gross premiums. However, one client accounted for more than 10%
of the Company's U.S. operations gross premiums. Also, three clients ceded
more than 5% of U.S. life gross premiums. Together they ceded $167.7
million, or 24.4%, of U.S. operations gross premiums in 1997.
General American and its affiliates generated less than 4.2% of U.S.
operations gross premiums in 1997, 1996, and 1995, exclusive of the
Retrocession Agreements. The Company's stable value products are reinsured
from General American. Deposits from stable value products totaled
approximately $483.0 million and $429.3 million during 1997 and 1996,
respectively. In addition, the Company entered into annuity reinsurance
transactions during the second quarter of 1997 with Cova Financial Services
Life Insurance Company, a subsidiary of General American. Deposits related
to this business were $124.4 million as of December 31, 1997.
During 1997, $243.9 million of U.S. operations net premium related to
facultative business. The U.S. life operations accepted new facultative
business from over 100 U.S. clients in 1997, and has been receiving
facultative business from most of these clients for an average of 10 years.
Underwriting
Facultative. Senior management has developed underwriting guidelines,
policies, and procedures with the objective of controlling the quality of
U.S. life business written as well as its pricing. The U.S. operations'
underwriting process emphasizes close collaboration among its underwriting,
actuarial, and operations departments. Management periodically updates these
underwriting policies, procedures, and standards to account for changing
industry conditions, market developments, and changes occurring in the field
of medical technology; however, no assurance can be given that all relevant
information has been analyzed or that additional risks will not materialize.
These policies, procedures, and standards are documented in an on-line
underwriting manual.
The U.S. operations determine whether to accept facultative reinsurance
business on a prospective insured by reviewing the client company's
applications and medical requirements, and assessing financial information
and any medical impairments. Most facultative applications involve a
prospective insured with multiple impairments, such as heart disease, high
blood pressure, and diabetes, requiring a difficult underwriting assessment.
To assist its underwriters in making this assessment, the U.S. life
operations employ two full-time and one part-time medical director, as well
as one medical consultant.
Automatic. The U.S. operations' management determines whether to write
automatic reinsurance business by considering many factors, including the
types of risks to be covered; the ceding company's retention limit and
binding authority, product, and pricing assumptions; and the ceding company's
underwriting standards, financial strength and distribution systems. For
automatic business, the U.S. operations endeavor to ensure that the
underwriting standards and procedures of its ceding companies are compatible
with those of RGA. To this end, the U.S. operations conduct periodic reviews
of the ceding companies' underwriting and claims personnel and procedures.
Approximately 12 client audits are conducted each year.
Financial Reinsurance. The financial reinsurance provided by the
Company is repaid by the future profit stream associated with the reinsured
block of business. The Company structures its financial reinsurance
transactions so that the future profits of the underlying reinsured business
conservatively exceed the amount of regulatory surplus provided to the ceding
company.
AIDS. Since 1987, the U.S. life insurance industry has implemented the
practice of antibody blood testing to detect the presence of the HIV virus
associated with Acquired Immune Deficiency Syndrome (AIDS). Prior to the
onset of routine antibody testing, it was possible for applicants with AIDS
to purchase significant amounts of life insurance. Since 1987, the
guidelines used by the U.S. operations have required ceding companies to
conduct HIV testing for life insurance risks at or above $100,000.
The Company believes that the antibody test for AIDS is effective. No
assurance can be given, however, that additional AIDS-related death claims
involving insureds who test negative for AIDS at the time of underwriting
14
15
will not arise in the future. The Company believes that its primary exposure
to the AIDS risk is related to business issued before the onset of AIDS
antibody testing in 1987. Each year, this business represents a smaller
portion of RGA Reinsurance's reinsurance in force.
Risk Management
Prior to January 1, 1996, RGA Reinsurance's practice was to retain up to
$2 million of liability on any one life for all life reinsurance. Effective
January 1, 1996, RGA Reinsurance increased this retention limit to up to $2.5
million. RGA Reinsurance has a number of retrocession arrangements whereby
certain business in force is retroceded on a quota share or facultative
basis. All of the U.S. retrocessionaires under such arrangements were rated
"A-" or better by A.M. Best as of December 31, 1996. RGA Reinsurance also
retrocedes business to foreign reinsurers. In these instances, additional
security in the form of letters of credit or trust assets have been given by
such retrocessionaires as additional security in favor of RGA Reinsurance.
The Company also retrocedes most of its financial reinsurance business to
other insurance companies to alleviate the strain on statutory surplus
created by this business.
RGA Reinsurance has never experienced a default in connection with its
retrocession arrangements, nor has it experienced any difficulty in
collecting claims recoverable from its retrocessionaires; however, no
assurance can be given as to the future performance of such retrocessionaires
or as to recoverability of any such claims.
RGA Reinsurance has catastrophe insurance coverage issued by an insurer
rated "A" by A.M. Best that provides benefits of up to $100 million per
occurrence for claims involving three or more deaths in a single accident,
with a deductible of $1.5 million per occurrence. This coverage is
terminable annually on 90 days notice and is ultimately provided through a
pool of seventeen unaffiliated insurers. The Company believes such
catastrophe insurance coverage is adequate to protect the Company from the
risks of multiple deaths of lives reinsured by policies with RGA Reinsurance
in a single accident. However, several large corporate plans reinsured by
RGA Reinsurance cover aggregate amounts substantially in excess of these
limits.
Operations
During 1997, substantially all gross U.S. life business was obtained
directly, rather than through brokers. The U.S. operations have an
experienced marketing staff which works to maintain existing relationships
and to provide responsive service.
The U.S. operations' auditing and accounting department is responsible
for treaty compliance auditing, financial analysis of results, generation of
internal management reports, and periodic audits of administrative practices
and records. A significant effort is focused on periodic audits of
administrative and underwriting practices, records, and treaty compliance of
reinsurance clients.
The U.S. operations' claims department (I) reviews and verifies
reinsurance claims, (ii) obtains the information necessary to evaluate
claims, (iii) determines the Company's liability with respect to claims, and
(iv) arranges for timely claims payments. Claims are subjected to a detailed
review process to ensure that the risk was properly ceded, the claim complies
with the contract provisions, and the ceding company is current in the
payment of reinsurance premiums to the U.S. life operation. The claims
department also investigates claims generally for evidence of
misrepresentation in the policy application and approval process. In
addition, the claims department monitors both specific claims and the overall
claims handling procedure of ceding companies.
Claims personnel work closely with their counterparts at client
companies to attempt to uncover fraud, misrepresentation, suicide, and other
situations where the claim can be reduced or eliminated. By law, the ceding
company cannot contest claims made after two years of the issuance of the
underlying insurance policy. By developing good working relationships with
the claims departments of client companies, major claims or problem claims
can be addressed early in the investigation process. Claims personnel review
material claims presented to RGA Reinsurance in detail to find potential
mistakes such as claims ceded to the wrong reinsurer and claims submitted for
improper amounts.
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Canadian Life Reinsurance
- -------------------------
Canadian life reinsurance business represented 10.0%, 9.4%, and 8.6%, of
RGA's net premiums in 1997, 1996, and 1995, respectively. In 1997, the
Canadian life operations wrote $8.0 billion in new business. Approximately
85% of the 1997 Canadian new business was written on an automatic basis.
During 1997, the Canadian operations began supporting preferred underwriting
products, added creditor business, and began offering reinsurance of critical
illness coverage. These new products and continued growth in traditional
reinsurance have contributed to the overall increase in business.
Clients include virtually all of Canada's principal life insurers with
no single client representing more than 10% of the Company's consolidated net
premium in 1997 and the two largest clients representing less than 5% of
consolidated gross premiums. The Canadian life operations compete with a
small number of individual and group life reinsurers. The Canadian life
operations compete primarily on the basis of price, service, and financial
strength.
RGA Canada's policy is to retain up to C$100,000 of individual life and
up to C$100,000 of Accidental Death and Dismemberment liability on any one
life. RGA Canada retrocedes amounts in excess of its retention mostly to RGA
Reinsurance through General American in accordance with the U.S. Retrocession
Agreement. Retrocessions are arranged through RGA Reinsurance's retrocession
pool. RGA Canada has never experienced a default in connection with its
retrocession arrangements, nor has it experienced any difficulty in
collecting claims recoverable from its retrocessionaires. However, no
assurance can be given as to the future performance of such retrocessionaires
or as to the recoverability of any such claims.
In 1987, the Canadian life insurance industry implemented the practice
of antibody blood testing to detect the presence of the HIV virus associated
with AIDS. Prior to the onset of routine antibody testing, it was possible
for applicants with AIDS to purchase significant amounts of life insurance.
Since 1987, the accepted industry practice is to conduct HIV testing for life
insurance risks over C$100,000. Accordingly, RGA Canada believes that its
main exposure to the AIDS risk is related to business issued before the onset
of AIDS antibody testing in 1987. Each year, this business represents a
smaller portion of RGA Canada's reinsurance in force.
RGA Canada maintains a staff of fifty-one people at the Montreal office
and eleven people in an office in Toronto. RGA Canada employs its own
underwriting, actuarial, claims, pricing, accounting, systems, marketing and
administrative staff.
RGA's Canadian life reinsurance business was originally conducted by
General American. General American entered the Canadian life reinsurance
market in 1978 and was primarily engaged in the retrocession business,
writing only a small amount of business with primary Canadian insurers. In
April 1992, General American, through RGA Canada, purchased the life
reinsurance assets and business of National Reinsurance Company of Canada
(National Re), including C$26.0 million of Canadian life reinsurance gross in
force premiums. National Re had been engaged in the life reinsurance business
in Canada since 1972, writing reinsurance on a direct basis with primary
Canadian insurers. Accordingly, this acquisition represented a significant
expansion of General American's Canadian life reinsurance business.
Accident and Health Reinsurance
- -------------------------------
In 1987, the Company began reinsuring accident and health risks on both
a group and individual basis. The Company's accident and health reinsurance
business represented 10.9%, 8.5%, and 8.4% of the Company's net premiums in
1997, 1996, and 1995, respectively. During the first quarter of 1997, the
Company recorded a charge of $18.0 million, $10.4 million after-tax, to
increase reserves associated with run-off claims from certain accident and
health insurance pools in which it had formerly participated. That action
was a result of management's strategic decision to exit all outside-managed
accident and health pools. The charge reflects management's intent to reserve
fully for all anticipated claim payments attributed to outside-managed accident
and health pools. Due to continuing losses emanating from certain of the
Company's accident and health operations in the third and fourth quarters of
1997, the strategic decision was made to cease marketing accident and health
business and to place the operation into run-off at year-end. The Company
estimates that future accident and health premiums compared to 1997 premiums
will remain level in 1998. Premiums will decrease, compared to each preceding
year, by approximately 20%, 70%, 90%, and 100% by the end of 1999, 2000, 2001,
and 2002, respectively. The Company established an additional $3.0 million in
reserves in the fourth quarter of 1997 to handle the business run-off. In
December 1997, RGA
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Reinsurance was notified by the holders of minority interests in its accident
and health subsidiaries of their intent to exercise certain put options for
their 49% ownership interest. Based upon the Company's decision to cease
marketing accident and health business, in December 1997, the Company
established a reserve of approximately $3.0 million against the intangible
asset that will arise related to the excess of the purchase price over the
fair value of net assets acquired when put options are exercised by certain
minority interests.
The Company principally reinsures stop-loss medical insurance and
accident insurance providing benefits for death, disability, and
dismemberment. Unlike life reinsurance, most accident and health reinsurance
is short-term in nature. The majority of such insurance is subject to
renegotiation or cancellation on an annual basis. Accordingly, increasing
health care costs generally do not have a significant adverse effect on the
profitability of accident and health reinsurance agreements.
More than 50% of the Company's accident and health reinsurance business
was accepted through participation in reinsurance pools. The Company
generally pursues a strategy of following an underwriting manager, who is
responsible for negotiating the price and terms of reinsurance with the
ceding company. However, in certain cases, the Company sets the price and
terms of the risks it reinsures.
Accident and health reinsurance is written on both a facultative and
treaty basis. Also, coverage provided can be through either a quota-share
treaty or an excess-basis treaty. Generally, the Company retains not more
than $500,000 of risk on one person, although it occasionally writes up to $1
million of risk on one person. The Company retains not more than $5 million
of risk per occurrence, per contract involving multiple insureds. The
Company typically retrocedes amounts in excess of these limits to certain
underwriters of Lloyd's of London, either through Great Rivers Reinsurance
Management, which has certain binding authority from such underwriters, as
described below, or on a facultative basis.
The Company had marketed its accident and health reinsurance to a broad
cross-section of primary insurers, which vary in size, corporate structure,
and geographic location, but which are generally smaller than the primary
insurers in the Company's U.S. life reinsurance business. Most of the
Company's accident and health reinsurance business was generated by
reinsurance intermediaries who were compensated on a commission basis. The
Company's accident and health reinsurance business competes with other
reinsurers and with reinsurance management pools.
Since October 1992, Great Rivers Reinsurance Management has underwritten
accident and health risks on behalf of General American. Since January 1,
1993, accident and health reinsurance written by General American has been
retroceded to RGA Reinsurance pursuant to the U.S. Retrocession Agreement.
Pursuant to a management agreement that can be terminated annually by either
party, Great Rivers Reinsurance Management has the authority to bind RGA
Reinsurance or General American to reinsurance risks subject to underwriting
standards that have been established by RGA Reinsurance and General American.
Great Rivers Reinsurance Management maintains a staff of eight people which
includes three underwriters who occasionally consults with RGA Reinsurance
regarding certain cases. Great Rivers Reinsurance Management receives a
commission for each risk it underwrites and may receive additional
compensation based on the profitability of the business underwritten.
Great Rivers Reinsurance Management is not required to, and does not,
operate exclusively for the Company. Currently, it also has authority from
certain underwriters at Lloyd's of London to bind such underwriters to
certain types of accident and health reinsurance risks, including certain
risks suitable for the Company, up to $5 million per person and up to $30
million per occurrence.
Other International Reinsurance
- -------------------------------
The other international segment includes the Latin American operations,
Asia Pacific operations, and Market Development operations. Beginning in
1994, the Company started various international initiatives that continued to
develop during 1997. In Chile, the Company is represented by a 50%
investment in BHIF America, a Chilean insurance company, and a 100%
investment in RGA Chile, a life reinsurance company. The Company owns 100%
of Manantial, an Argentine insurance company. In addition, RGA Reinsurance
has provided reinsurance on mortality risk reinsurance associated with the
privatization of the Argentine pension system. The Company has a presence in
the Asia Pacific region with a licensed branch office in Hong Kong and a
representative office in Tokyo. The Company also established subsidiary
companies in Australia in January 1996: Australian
17
18
Holdings, a wholly-owned holding company, and RGA Australia, a wholly-owned
life reinsurance company. In addition, RGA Reinsurance provides direct
reinsurance to several companies within the Asia Pacific region. The
Company's Market Development operations provide marketing support for
operations in existing and potential future markets.
Other international life reinsurance business represented 12.8%, 10.1%,
and 10.3% of the Company's consolidated net premiums in 1997, 1996, and 1995,
respectively. No single client in the other international segment
represented more than 10% of the Company's consolidated net premium for 1997.
For other international business, RGA Reinsurance retains up to $2.5
million for U.S., Canadian, Australian, and New Zealand currency-denominated
business. For other currencies and based on countries with higher risk
factors, RGA Reinsurance systematically reduces its retention. The Chilean
subsidiaries have a policy of ceding business in excess of approximately
$22,000, while the Argentine subsidiary cedes business in excess of $40,000.
RGA Australia has a retrocession arrangement with RGA Reinsurance in which
life risks above $100,000 Australian dollars are retroceded to RGA
Reinsurance. On an aggregate basis among all of its subsidiaries, the
Company does not retain more than $2.5 million on any one life.
BHIF America and RGA Chile maintain staffing of thirty people at the
head offices in Santiago, Chile. Manantial maintains a staff of thirty
people in Buenos Aires, Argentina. These subsidiaries employ their own
underwriting, actuarial, claims, pricing, accounting, systems, marketing and
administrative staff. Within Asia Pacific, six people were on staff in the
Hong Kong office, four people were on staff in the Tokyo office, and RGA
Australia maintained a staff of twelve people in Sydney. The Hong Kong and
Tokyo offices primarily provide marketing and underwriting service to the
direct life insurance companies with other service support provided directly
by RGA Reinsurance operations.
RGA Australia directly maintains its own underwriting, actuarial,
claims, pricing, accounting, systems, marketing and administration service
with additional support provided by RGA Reinsurance operations.
D. Financial Information About Foreign Operations
The Company's foreign operations are primarily in Canada, Latin America,
and the Asia Pacific region which includes Australia. Revenue, income (loss)
which includes net realized gains (losses) before income tax and minority
interest, and identifiable assets attributable to these geographic regions
are identified in the following table:
18
19
Financial Information Relating to Foreign Operations
(dollars in millions)
1997 1996 1995
Revenues:
Canada $120.1 $ 78.5 $ 60.3
Latin America 77.1 52.0 49.1
Asia Pacific 38.3 22.0 12.5
Other International 2.9 0.3 -
------ ------ ------
Total $238.4 $152.8 $121.9
====== ====== ======
Income (Loss):
Canada $ 15.1 $ 13.4 $ 10.9
Latin America (0.1) 2.1 3.5
Asia Pacific (5.0) (4.4) (1.7)
Other International (3.1) (1.8) -
------ ------ ------
Total $ 6.9 $ 9.3 $ 12.7
====== ====== ======
Total Assets:
Canada $580.6 $321.3 $247.4
Latin America 178.0 128.0 80.1
Asia Pacific 80.5 41.8 19.9
Other International 9.1 0.9 3.6
------ ------ ------
Total $848.2 $492.0 $351.0
====== ====== ======
E. Executive Officers of the Registrant
For information regarding the executive officers of the Company, see
Part III, Item 10, entitled "Directors and Executive Officers of the
Registrant."
Item 2. PROPERTIES
RGA Reinsurance houses its employees and the majority of RGA's officers
in 71,994 square feet of office space at 660 Mason Ridge Center Drive, St.
Louis County, Missouri. These premises are leased from General American for
an initial term ending August 31, 1998, at an annual rent of $1,538,872 plus
a pro-rated share of increases in taxes and operating expenses for the
building beyond the levels of 1995. A portion of this office space is
subleased to subsidiaries, Re Partners and RGA/Swiss Financial Group, L.L.C.
RGA Reinsurance also conducts business from approximately 1,800 square
feet of office space located in Hong Kong and approximately 1,300 square feet
of office space located in Tokyo, Japan. The rental expenses paid by RGA
Reinsurance under the leases during 1997 were approximately $162,000 and
$76,000 for Hong Kong and Tokyo, respectively. RGA Australia conducts
business from approximately 3,600 square feet of office space located in
Sydney, Australia and paid $58,200 during 1997 for lease expense. The Hong
Kong and Tokyo leases expire in January 2001 and December 1998 respectively.
The Sydney lease expires in December 1998.
Manantial conducts business from approximately 15,200 square feet of
office space in Buenos Aires, Argentina, pursuant to several leases. Rental
expense paid for the office was approximately $182,500 during 1997. BHIF
America and RGA Chile conduct business from approximately 4,700 square feet
of office space in Santiago, Chile. The lease expense paid during 1997 was
approximately $48,800. Three of the Buenos Aires leases expire in 1999 with
the remaining lease expiring in 2000. The Santiago lease expires in April
1999.
RGA Canada's operations are conducted from approximately 9,800 square
feet of office space located in Montreal, Canada. The lease with respect to
such space expires in 2010. Rental expenses paid by RGA Canada under the
lease during 1997 were approximately $205,000. RGA Canada also sub-leases
approximately 800 square
19
20
feet of space in Montreal, Canada. The sub-lease expires in 2000. The
rental expenses paid by RGA Canada under the sub-lease during 1997 were
approximately $13,000. RGA Canada also leases approximately 5,900 square
feet of space in Toronto, Canada. This lease expires in 2005. The rental
expenses paid by RGA Canada under the Toronto lease during 1997 were
approximately $122,000. RGA International conducts operations from
approximately 4,200 square feet of office space located in Toronto, Canada.
The lease with respect to such space expires in 2009. The rental expenses
paid by RGA International under the lease during 1997 were approximately
$32,000.
Great Rivers Reinsurance Management conducts business from approximately
5,900 square feet of office space located in St. Louis, Missouri. The rental
expenses paid for the office were approximately $110,000 during 1997. This
lease expires in March 2002. RGA UK Underwriting conducts business from
approximately 1,200 square feet of office space located in London, England.
The rental expenses paid for the office were approximately $43,000. This
lease expires in March 2003.
The Company believes its facilities have been generally well-maintained,
are in good operating condition, and are adequate for its current
requirements.
Item 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to litigation and arbitration
related to its reinsurance business and to employment-related matters in the
normal course of its business. Management does not believe that the Company
is party to any such pending litigation or arbitration which would have a
material adverse effect on its future operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There were no matters that were submitted to a vote of security holders
during the fourth quarter of 1997.
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information on this subject is incorporated by reference to the Annual
Report for 1997 under the caption "Quarterly Data (Unaudited)."
Dividend Policy
- ---------------
RGA began paying a dividend of $0.06 per pre-split share each quarter,
starting in August 1993. In August 1995, the dividend was raised to $0.07 per
pre-split share and raised to $0.08 per pre-split share in August 1996. In
July 1997, a three-for-two stock split was declared and the dividend was
raised to $0.09 per pre-split share ($0.06 per share after the split). It is
expected that payments at this level will continue for the foreseeable
future. 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.
Insurance companies are subject to statutory regulations which restrict
the payment of dividends. In the case of RGA Reinsurance, Missouri
regulations impose a limit of the greater of 10% of statutory capital and
surplus or statutory operating income, both as of the end of the preceding
year. Any dividend proposed by RGA Reinsurance in excess of these measures
would, under Missouri law, be "extraordinary" and subject to review by the
Missouri Director of Insurance. See "Business - Corporate Structure -
Regulation."
20
21
Item 6. SELECTED FINANCIAL DATA
These data are found at page 56 in the Annual Report for 1997 under the
caption "Selected Consolidated Financial and Operating Data" which section is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion and analysis is incorporated by reference to the Annual
Report for 1997 under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is incorporated by reference to the Annual Report for
1997 under the following captions:
Page of Annual
Index Report
----- ------
Consolidated Balance Sheets 34
Consolidated Statements of Income 35
Consolidated Statements of
Stockholders' Equity 36
Consolidated Statements of Cash Flows 37
Notes to Consolidated Financial Statements 38-53
Independent Auditors' Report 54
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is incorporated by
reference to the Proxy Statement under the captions "Nominees and Continuing
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance."
The Proxy Statement will be filed pursuant to Regulation 14A within 120 days
of the end of the Company's fiscal year.
The following is certain additional information concerning the executive
officers of the Company. With the exception of Mr. Atkinson, Mr. McCauley,
Mr. Nitsou, Mr. St-Amour, and Mr. Watson, each individual holds the same
position at RGA and RGA Reinsurance.
David B. Atkinson has been Executive Vice President and Chief Operating
Officer since January 1997. He is also President and Chief Executive Officer
of RGA Reinsurance. He served as Executive Vice President and Chief
Operating Officer, U.S. Operations of the Company from 1995 to 1996 and
Executive Vice President and Chief Financial Officer from 1993 to 1994.
Prior to the formation of RGA, Mr. Atkinson served as Reinsurance Operations
Vice President of General American. Mr. Atkinson joined General American in
1987 as Second Vice President and was promoted to Vice President later the
same year. Prior to joining General American, he served as Vice President
and Actuary of Atlas Life Insurance Company from 1981 to 1987, as Chief
Actuarial Consultant at Cybertek Computer Products from 1979 to 1981, and in
a variety of actuarial positions with Occidental Life Insurance Company of
California from 1975 to 1979. Mr. Atkinson also serves as a director and
officer of certain RGA subsidiaries.
21
22
Bruce E. Counce has been Executive Vice President and Chief Corporate
Operating Officer since January 1997. He served as Executive Vice President,
U.S. Traditional Reinsurance from 1993 to 1997. Prior to the formation of
RGA, Mr. Counce served as Reinsurance Sales and Marketing Vice President for
General American. After joining General American in 1967, Mr. Counce joined
the Reinsurance Division in 1980 in a sales capacity and held a series of
increasingly responsible positions leading to his current position.
Jack B. Lay is Executive Vice President and Chief Financial Officer.
Prior to joining the Company in 1994, Mr. Lay served as Second Vice President
and Associate Controller at General American. In that position, he was
responsible for all accounting and external financial reporting as well as
merger and acquisition support. Before joining General American in 1991, Mr.
Lay was a partner in the financial services practice with the St. Louis
office of KPMG Peat Marwick LLP. Mr. Lay also serves as a director and
officer of certain RGA subsidiaries.
Brendan J. Galligan is Senior Vice President, Asia Pacific Division.
Prior to joining RGA, Mr. Galligan was Senior Vice President of RGA Canada,
and its predecessor, National Re, for five years. His insurance and
reinsurance career commenced in Canada in 1977.
Joel S. Iskiwitch is Senior Vice President, Accident and Health
Division. In 1995, Mr. Iskiwitch joined Great Rivers Reinsurance, a
subsidiary of RGA, as a participant in General American's Management Rotation
Program. Prior to joining Great Rivers Reinsurance Management and RGA, Mr.
Iskiwitch held the position of Vice President of Business Markets and
Advanced Underwriting for GenMark/Individual Line at General American. After
joining General American in 1988, Mr. Iskiwitch held a series of responsible
positions leading to his current position at RGA.
Paul A. Schuster has been Senior Vice President, U.S. Division since
January 1997. He served as Reinsurance Actuarial Vice President in 1995 and
Senior Vice President & Chief Actuary of the Company in 1996. Prior to the
formation of RGA, Mr. Schuster served as Second Vice President and
Reinsurance Actuary of General American. Prior to joining General American
in 1991, he served as Vice President and Assistant Director of Reinsurance
Operations of the ITT Lyndon Insurance Group from 1988 to 1991, and in a
variety of actuarial positions with General Reassurance Corporation from 1976
to 1988.
Kenneth D. Sloan has been Senior Vice President, U.S. Facultative
Division since January 1997. He served as Vice President, Underwriting of
the Company from 1993 to 1997. Prior to the formation of RGA, Mr. Sloan
served as Second Vice President of Reinsurance Underwriting for General
American. Mr. Sloan joined General American in 1968 in an underwriting
capacity and held a series of increasingly responsible positions leading to
his current position.
Matthew P. McCauley is General Counsel and Secretary of the Company.
Mr. McCauley has served as Associate General Counsel of General American
since 1985 and is a director and officer of General American Capital Company
and an officer of The Walnut Street Funds, Inc., both of which are registered
investment companies affiliated with General American. He serves as a
director or officer of a number of General American subsidiaries, including
Conning Corporation, formerly known as General American Investment Management
Company, a registered investment advisor, and Walnut Street Securities, Inc.,
a registered broker/dealer.
Paul Nitsou is Senior Vice President, Market Development Division for
RGA. Prior to joining RGA in 1996, Mr. Nitsou was Vice President,
Reinsurance for Manulife Financial. Mr. Nitsou joined RGA in 1996 as Vice
President, Market Development and was promoted within his first year of
employment to Senior Vice President, Market Development Division.
Andre St-Amour is President and Chief Executive Officer of RGA
Canada and Chief Agent for the General American Life Insurance Company
Canadian Branch. Prior to January 1995, he was President and Chief Operating
Officer. Mr. St-Amour joined RGA Canada in 1992 when the company acquired
the reinsurance business of National Re. Mr. St-Amour served as Executive
Vice President, Life Division, of National Re from 1989 to 1991. Prior to
joining National Re, Mr. St-Amour served in a variety of actuarial positions
with Canadian National Railways and Laurentian National Insurance Company.
22
23
Graham S. Watson is Executive Vice President and Chief Marketing Officer
of RGA. Upon joining RGA in 1996, Mr. Watson was President and CEO of RGA
Australia. Prior to joining RGA in 1996, Mr. Watson was the President and
CEO of Intercedent Limited in Canada and has held various positions of
increasing responsibility for other life insurance companies. Mr. Watson
also serves as a director and officer of certain RGA subsidiaries.
A. Greig Woodring is President, Chief Executive Officer, and director.
As President and CEO of the Company, Mr. Woodring is also an executive officer
of General American Life Insurance Company. Prior to the formation of RGA,
Mr. Woodring had headed General American's reinsurance business since 1986.
He also serves as a director and officer of a number of the Company's
subsidiaries. Before joining General American Life Insurance Company, Mr.
Woodring was an actuary at United Insurance Company.
Richard A. Liddy is Chairman of the Board of the Company. He also
serves as President, Chief Executive Officer and Chairman of the Board of
General American Life Insurance Company, and President and Chairman of
GenAmerica Corporation and General American Mutual Holding Company (General
American Holding). From 1982 through 1988, he was Senior Vice President and
Executive Vice President of Continental Corporation, and President, Financial
Services Group of Continental Insurance Company. He is also Chairman of the
Board of General American Capital Company and The Walnut Street Funds, Inc.,
each a registered investment company, and is a director of Ameren
Corporation, Brown Group, Inc., Conning Corporation and Ralston Purina
Company. Mr. Liddy is also Chairman of Cova Corporation, Paragon Life
Insurance Company, Security Equity Life Insurance Company and Security Mutual
Life Insurance Company of New York, and a number of other subsidiaries and
affiliates of General American Holding.
Item 11. EXECUTIVE COMPENSATION
Information on this subject is incorporated by reference to the Proxy
Statement under the captions "Executive Compensation" and "Nominees and
Continuing Directors." The Proxy Statement will be filed pursuant to
Regulation 14A within 120 days of the end of the Company's fiscal year.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information on this subject is incorporated by reference to the Proxy
Statement under the caption "Common Stock Ownership of Management and Certain
Beneficial Owners." The Proxy Statement will be filed pursuant to Regulation
14A within 120 days of the end of the Company's fiscal year.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on this subject is incorporated by reference to the Proxy
Statement under the caption "Certain Relationships and Related Transactions."
The Proxy Statement will be filed pursuant to Regulation 14A within 120 days
of the end of the Company's fiscal year.
Part IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated statements are incorporated by reference to
the Annual Report for 1997 under the following captions:
23
24
Index Page
- ----- ----
Consolidated Balance Sheets 34
Consolidated Statements of Income 35
Consolidated Statements of Stockholders' Equity 36
Consolidated Statements of Cash Flows 37
Notes to Consolidated Financial Statements 38-53
Independent Auditors' Report 54
2. Schedules, Reinsurance Group of America, Incorporated and
Subsidiaries
Schedule Page
- -------- ----
I Summary of Investments 26
III Supplementary Insurance Information 27
IV Reinsurance 28
V Valuation and Qualifying Accounts 29
All other schedules specified in Regulation S-X are omitted for the
reason that they are not required, are not applicable, or that equivalent
information has been included in the consolidated financial statements, and
notes thereto, appearing in Appendix I attached hereto.
3. Exhibits
See the Index to Exhibits on page 31.
(b) No reports on Form 8-K were filed during the fourth quarter of 1997.
24
25
Independent Auditors' Report
----------------------------
Board of Directors and Stockholders
Reinsurance Group of America, Incorporated:
Under date of January 29, 1998, we reported on the consolidated balance
sheets of Reinsurance Group of America, Incorporated and subsidiaries (the
Company) as of December 31, 1997 and 1996, 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, 1997, as contained in the
1997 annual report to stockholders. These consolidated financial statements
and our report thereon are incorporated by reference in the annual report on
Form 10-K for the year 1997. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules as listed in the accompanying
index. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
January 29, 1998
25
26
REINSURANCE GROUP OF AMERICA, INCORPORATED
SCHEDULE I--SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
December 31, 1997
(in millions)
Amount at
which
shown in
Fair the Balance
Type of Investment Cost Value <F3> Sheets <F1><F3>
------------------ ---- ---------- ---------------
Fixed maturities:
Bonds:
United States government and government
agencies and authorities $ 90.9 $ 92.2 $ 92.2
Foreign governments <F2> 202.0 270.5 270.5
Public utilities 126.4 145.9 145.9
All other corporate bonds 1,997.0 2,019.7 2,019.7
-------- -------- --------
Total fixed maturities 2,416.3 2,528.3 2,528.3
-------- -------- --------
Equity securities 10.7 10.7 10.7
Mortgage loans on real estate 165.5 xxx 165.5
Policy loans 480.2 xxx 480.2
Funds withheld at interest 165.4 xxx 165.4
Short-term investments 277.6 xxx 277.6
Other 6.3 xxx 6.3
-------- -------- --------
Total investments $3,522.0 xxx $3,634.0
======== ======== ========
<FN>
<F1> Fixed maturities are classified as available for sale and carried at
fair value.
<F2> The following exchange rates have been used to convert foreign
securities to U.S. dollars:
Canadian dollar $0.6992/C$1.00
Argentina dollar $1.0001/A$1.00
Chilean Peso $0.0023/$1.00 Peso
Australian dollar $0.6503/$1.00 Aus
<F3> Fair value represents the closing sales prices of marketable securities.
Estimated fair values for private placement securities of $386.2
million, included in all other corporate bonds, are based on the
credit quality and duration of marketable securities deemed
comparable by the Company, which may be of another issuer.
26
27
REINSURANCE GROUP OF AMERICA, INCORPORATED
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
as of December 31, Years Ended December 31,
--------------------------------------------------------- --------------------------------------------------
Future Policy Other Policy
Deferred Policy Benefits, Claims and
Acquisition Costs Losses and Claims Benefits Payable
--------------------------------------------------------- Net Benefits,
Invest- Claims Amorti- Other
Premium ment and zation Operating
Assumed Ceded Assumed Ceded Assumed Ceded Income Income Losses of DAC Expenses
- -------------------------------------------------------------------------------- --------------------------------------------------
1995
U.S. Operations $132,300 (4,961) 1,010,142 (52,659) 114,625 (10,556) $414,132 73,959 (345,765) (31,875) (55,089)
Canadian Operations 41,614 (336) 138,707 (29,079) 9,712 (3,671) 49,248 11,064 (36,683) (2,176) (10,576)
Accident and Health 651 (5) 7,931 (76) 60,973 (23,660) 47,789 730 (33,640) (6,827) (9,083)
Other International 17,551 (1) 43,829 (3) 22,363 (2,570) 58,821 2,805 (47,779) (454) (11,573)
Adjustments and
Eliminations 0 0 0 0 0 0 0 1,559 0 0 (1,993)
-------- ------ --------- ------- ------- ------- -------- ------- -------- ------- --------
Total $192,116 (5,303) 1,200,609 (81,817) 207,673 (40,457) $569,990 90,117 (463,867) (41,332) (88,314)
======== ====== ========= ======= ======= ======= ======== ======= ======== ======= ========
1996
U.S. Operations $160,737 (7,182) 1,578,172 (52,754) 111,257 (5,342) $486,717 111,801 (414,643) (33,921) (82,300)
Canadian Operations 52,039 (1,220) 184,800 (35,366) 11,390 (4,094) 63,118 12,722 (49,270) (1,603) (14,240)
Accident and Health 848 (11) 10,866 (252) 60,485 (20,228) 57,182 1,019 (42,250) (15,888) (4,851)
Other International 28,354 0 88,446 (3) 23,152 (2,772) 67,868 6,135 (54,282) (575) (21,449)
Adjustments and
Eliminations 0 0 0 0 0 0 0 5,151 0 0 (7,696)
-------- ------ --------- ------- ------- ------- -------- ------- -------- ------- --------
Total $241,978 (8,413) 1,862,284 (88,375) 206,284 (32,436) $674,885 136,828 (560,445) (51,987) (130,536)
======== ====== ========= ======= ======= ======= ======== ======= ======== ======= ========
1997
U.S. Operations $203,486 (6,968) 2,735,772 (185,761) 157,240 (13,577) $554,253 154,303 (498,671) (37,469) (88,928)
Canadian Operations 50,506 (505) 278,738 (54,627) 49,267 (34,536) 83,563 16,321 (76,265) (10,775) (18,023)
Accident and Health 2,680 (36) 23,587 (1,146) 101,205 (31,323) 90,692 1,249 (88,658) (25,260) (8,746)
Other International 40,679 0 175,714 (34,132) 37,136 (3,744) 106,952 10,876 (86,509) (3,485) (36,541)
Adjustments and
Eliminations 0 0 0 0 0 0 0 5,584 0 0 (8,114)
-------- ------ --------- ------- ------- ------- -------- ------- -------- ------- --------
Total $297,351 (7,509) 3,213,811 (275,666) 344,848 (83,180) $835,460 188,333 (750,103) (76,989) (160,352)
======== ====== ========= ======= ======= ======= ======== ======= ======== ======= ========
27
28
REINSURANCE GROUP OF AMERICA, INCORPORATED
SCHEDULE IV - REINSURANCE
(in millions)
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed to
Amount Companies Companies Amount Net
------ --------- --------- ------ ---
1995
Life insurance in force $ 85 $25,275 $153,861 $128,671 119.58%
Premiums
U.S. Operations $ 2.6 $ 100.7 $ 512.2 $ 414.1 123.69%
Canadian Operations - 15.8 65.1 49.3 132.05%
Accident and Health - 60.0 107.8 47.8 225.52%
Other International 33.8 1.8 26.8 58.8 45.58%
--------------------------------------------------------------
Total $36.4 $ 178.3 $ 711.9 $ 570.0 124.89%
===== ======= ======== ======== ======
1996
Life insurance in force $ 85 $39,050 $168,339 $129,374 130.12%
Premiums
U.S. Operations $ 2.5 $ 134.2 $ 618.1 $ 486.4 127.08%
Canadian Operations - 18.4 81.5 63.1 129.16%
Accident and Health - 55.0 112.2 57.2 196.15%
Other International 41.7 2.0 28.5 68.2 41.79%
--------------------------------------------------------------
Total $44.2 $ 209.6 $ 840.3 $ 674.9 124.51%
===== ======= ======== ======== ======
1997
Life insurance in force $ 83 $28,720 $227,260 $198,623 114.42%
Premiums
U.S. Operations $ 2.4 $ 132.9 $ 684.8 $ 554.3 123.54%
Canadian Operations - 21.8 105.4 83.6 126.08%
Accident and Health - 96.8 187.5 90.7 206.73%
Other International 62.6 1.8 46.1 106.9 43.12%
--------------------------------------------------------------
Total $65.0 $ 253.3 $1,023.8 $ 835.5 122.54%
===== ======= ======== ======== ======
28
29
REINSURANCE GROUP OF AMERICA, INCORPORATED
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
December 31, 1997
(in millions)
Balance at Charges to Charged to Other
Beginning of Costs and Accounts- Deductions- Balance at End
Description Period Expenses Describe Describe of Period
- ---------------------------------------------------------------------------------------------------------------------------
1996
Mortgage loan
valuation allowance $ - $0.3 $ - $ - $0.3
---- ---- ---- ---- ----
Total $ - $0.3 $ - $ - $0.3
==== ==== ==== ==== ====
1997
Mortgage loan
valuation allowance $0.3 $0.1 $ - $ - $0.4
---- ---- ---- ---- ----
Total $0.3 $0.1 $ - $ - $0.4
==== ==== ==== ==== ====
29
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Reinsurance Group of America, Incorporated.
By: /s/ A. Greig Woodring March 18, 1998
----------------------------------------
A. Greig Woodring
President and Chief Executive Officer
Date: March 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 18, 1998.
Signatures Title
---------- -----
/s/ Richard A. Liddy March 18, 1998 Chairman of the Board and Director
- ------------------------------------------
Richard A. Liddy
/s/ A. Greig Woodring March 18, 1998 President, Chief Executive Officer,
- ------------------------------------------ and Director
A. Greig Woodring (Principal Executive Officer)
/s/ J. Cliff Eason March 18, 1998 <F*> Director
- ------------------------------------------
J. Cliff Eason
/s/ Bernard A. Edison March 18, 1998 <F*> Director
- ------------------------------------------
Bernard A. Edison
/s/ Stuart I. Greenbaum March 18, 1998 <F*> Director
- ------------------------------------------
Stuart I. Greenbaum
/s/ William A. Peck, M.D. March 18, 1998 <F*> Director
- ------------------------------------------
William A. Peck, M.D.
/s/ Leonard M. Rubenstein March 18, 1998 <F*> Director
- ------------------------------------------
Leonard M. Rubenstein
/s/ William P. Stiritz March 18, 1998 <F*> Director
- ------------------------------------------
William P. Stiritz
/s/ Edwin Trusheim March 18, 1998 Director
- ------------------------------------------
H. Edwin Trusheim
/s/ Jack B. Lay March 18, 1998 Executive Vice President and Chief
- ------------------------------------------ Financial Officer
Jack B. Lay (Principal Financial and Accounting
Officer)
<FN>
<F*> By: /s/ Jack B. Lay March 18, 1998
---------------------------------
Jack B. Lay Attorney-in-fact
30
31
Index to Exhibits
Source
Exhibit (See footnotes
Number Description that follow)
- ------ ----------- --------------------
2.1. Reinsurance Agreement dated as of December 31, 1992 <F2>
between General American Life Insurance Company
("General American") and General American Life
Reinsurance Company of Canada ("RGA Canada")
2.2. Retrocession Agreement dated as of <F2>
July 1, 1990 between General American and
The National Reinsurance Company of Canada,
as amended between RGA Canada and General American
on December 31, 1992
2.3. Reinsurance Agreement dated as of <F2>
January 1, 1993 between RGA Reinsurance
Company ("RGA Reinsurance", formerly "Saint Louis
Reinsurance Company") and General American
3.1. Restated Articles of Incorporation of Reinsurance <F1>
Group of America, Incorporated ("RGA")
3.2. Bylaws of RGA <F1>
3.3. Certificate of Designations for Series A Junior <F5>
Participating Preferred Stock (included as Exhibit A
to Exhibit 4.2)
4.1. Form of Specimen Certificate for Common Stock of RGA <F2>
4.2. Rights Agreement dated as of May 4, 1993, between RGA <F5>
and ChaseMellon Shareholder Services, L.L.C., as Rights Agent
10.1. Marketing Agreement dated as of January 1, 1993 <F3>
between RGA Reinsurance and General American
10.2. Tax Allocation Agreement dated October 30, 1992 <F2>
between RGA Reinsurance and General American
10.3. Tax Allocation Agreement dated as of January 15, 1993 <F2>
among RGA, RGA Reinsurance, and General American
10.4. Tax Sharing Agreement dated as of January 15, 1993 <F2>
among RGA, RGA Reinsurance, and General American
10.5. Administrative Services Agreement dated as of <F3>
January 1, 1993 between RGA and General American
10.6. Administrative Services Agreement dated as of <F3>
January 1, 1993 between RGA Reinsurance
and General American
31
32
Source
Exhibit (See footnotes
Number Description that follow)
- ------ ----------- --------------------
10.7. Management Agreement dated as of January 1, 1993 <F2><F*>
between RGA Canada and General American
10.8. Investment Advisory Agreement dated as of <F3>
January 1, 1993 between RGA and Conning Asset Management
Company, formerly General American Investment Management
Company ("CAM")
10.9. Investment Advisory Agreement dated as of <F3>
January 1, 1993 between RGA Reinsurance
and CAM
10.10. Lease Agreement dated as of May 17, 1993 between <F4>
RGA and General American and Assignment to RGA
Reinsurance
10.11 Standard Form of General American Automatic <F2>
Agreement
10.12 Standard Form of General American Facultative Agreement <F2>
10.13 Standard Form of General American Automatic and <F2>
Facultative YRT Agreement
10.14 Shareholders' Agreement dated as of November 24, 1992 <F3><F*>
among General American, Fairfield Holding,
Adrian N. Baker II, Richard H. Chomeau, and
Anthony J. Sutcliffe, as amended with RGA and
RGA Reinsurance
10.15 Shareholders' Agreement dated as of March 20, 1992 <F3><F*>
among General American, RGA International, Ltd., formerly
G.A. Canadian Holdings, Ltd., Penta-Life Group Inc., Claude M.
Genest, Brendan Galligan, Graham Watson, Societe FSA 50
Inc., Aenigma Holdings Limited, Andre St-Amour, and Andr
Primeau, as amended with RGA
10.16 Registration Rights Agreement dated as of April 15, 1993 <F2>
between RGA and General American
10.17 RGA Reinsurance Management Incentive Plan as amended <F6><F*>
and restated effective November 1, 1996
10.18 RGA Reinsurance Management Deferred <F2><F*>
Compensation Plan (ended January 1, 1995)
10.19 RGA Reinsurance Executive Deferred <F2><F*>
Compensation Plan (ended January 1, 1995)
32
33
Source
Exhibit (See footnotes
Number Description that follow)
- ------ ----------- --------------------
10.20 RGA Reinsurance Executive Supplemental <F2><F*>
Retirement Plan (ended January 1, 1995)
10.21 RGA Reinsurance Augmented Benefit Plan <F2><F*>
(ended January 1, 1995)
10.22 RGA Flexible Stock Plan as amended and restated <F6><F*>
effective November 1, 1996
10.23 Form of Directors' Indemnification Agreement <F2>
10.24 RGA Executive Performance Share Plan as amended <F6><F*>
and restated effective November 1, 1996
10.25 RGA Flexible Stock Plan for Directors <F7><F*>
10.26 Employment Agreement dated April 6, 1992 between RGA <F*>
Canada and Andre St-Amour
13.1 Portions of Annual Report to Shareholders for 1997 --
Incorporated by Reference in the Form 10-K
21.1 Subsidiaries of RGA --
23.1 Consent of KPMG Peat Marwick LLP --
24.1 Powers of Attorney for Messrs. Eason, Edison, Peck --
Greenbaum, Rubenstein, Stiritz, and Trusheim
27.1 Financial Data Schedule --
<FN>
<F1> Documents incorporated by reference to Registration Statement on Form S-1
(No. 33-58960) filed on 2 March 1993 at the corresponding exhibit.
<F2> Documents incorporated by reference to Amendment No. 1 to Registration
Statement on Form S-1 (No. 33-58960), filed on 14 April 1993 at the corresponding
exhibit.
<F3> Documents incorporated by reference to Amendment No. 2 to Registration
Statement on Form S-1 (No. 33-58960), filed on 29 April 1993 at the corresponding
exhibit.
<F4> Documents incorporated by reference to Form 10-K for fiscal year ended
December 31, 1993 filed 29 March 1994 at the corresponding exhibit.
<F5> Documents incorporated by reference to Amendment No. 1 to Form 10-Q for the
quarter ended March 31, 1997 (No. 1-11848) filed on 21 May 1997 at the corresponding
exhibit.
33
34
<F6> Documents incorporated by reference to Form 10-K for the year ended December 31, 1996
(No. 1-11848) filed on 24 March 1997 at the corresponding exhibit.
<F7> Documents incorporated by reference to Registration Statement on Form S-8
(No. 333-27167) filed on 15 May 1997 at the corresponding exhibit
<F*> Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form pursuant to Item 14C of this Part IV.
34