1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------
COMMISSION FILE NUMBER 1-11848
REINSURANCE GROUP OF AMERICA, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-1627032
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1370 TIMBERLAKE MANOR PARKWAY
CHESTERFIELD, MISSOURI 63017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(636) 736-7439
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
--------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) 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
--- ---
VOTING COMMON STOCK OUTSTANDING ($.01 PAR VALUE) AS OF OCTOBER 29, 1999:
45,129,989 SHARES
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I - FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income (Unaudited)
Three and Nine months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6-10
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-32
3 Qualitative and Quantitative Disclosures About Market Risk 32
PART II - OTHER INFORMATION
1 Legal Proceedings 33
4 Submission of Matters to a Vote of Security Holders 33
6 Exhibits and Reports on Form 8-K 34
Signatures 35
Index to Exhibits 36
2
3
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1999 1998
-------------- ------------
(Dollars in thousands)
ASSETS
Fixed maturity securities
Available for sale-at fair value (amortized cost of $2,196,925 and
$3,613,602 at September 30, 1999, and December 31, 1998, respectively) $ 2,077,586 $ 3,701,617
Mortgage loans on real estate 240,967 216,636
Policy loans 607,257 513,885
Funds withheld at interest 681,620 359,786
Short-term investments 122,430 314,953
Other invested assets 25,890 22,704
----------- -----------
Total investments 3,755,750 5,129,581
Cash and cash equivalents 114,378 15,966
Accrued investment income 58,943 62,447
Premiums receivable 333,824 173,935
Funds withheld 62,585 73,042
Reinsurance ceded receivables 291,098 259,688
Deferred policy acquisition costs 463,486 351,042
Other reinsurance balances 89,933 217,677
Other assets 9,654 35,175
----------- -----------
Total assets $ 5,179,651 $ 6,318,553
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits $ 1,814,763 $ 1,585,506
Interest sensitive contract liabilities 1,674,254 2,985,515
Other policy claims and benefits 526,325 482,049
Other reinsurance balances 66,991 177,806
Deferred income taxes 91,927 121,988
Other liabilities 172,695 105,471
Long-term debt 183,884 107,994
----------- -----------
Total liabilities 4,530,839 5,566,329
Minority interest 2,231 3,747
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock (par value $.01 per share; 10,000,000 shares authorized; no
shares issued or outstanding) - -
Common stock (par value $.01 per share; 75,000,000 shares authorized,
46,268,584 and 39,073,613 shares issued at September 30, 1999 and 463 392
December 31, 1998, respectively)
Non-voting common stock (par value $.01 per share; 7,417,496 shares issued
and outstanding at December 31, 1998; - 74
Additional paid in capital 486,137 486,669
Retained earnings 269,722 251,512
Accumulated other comprehensive income (89,691) 30,305
----------- -----------
Total stockholders' equity before treasury stock 666,631 768,952
Less treasury shares held of 1,138,595 and 1,178,270 at cost at
September 30, 1999, and December 31, 1998, respectively (20,050) (20,475)
----------- -----------
Total stockholders' equity 646,581 748,477
----------- -----------
Total liabilities and stockholders' equity $ 5,179,651 $ 6,318,553
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
REVENUES:
Net premiums $ 295,079 $ 224,327 $ 965,603 $ 705,352
Investment income, net of related expenses 91,697 71,126 264,231 206,180
Realized investment gains/(losses), net (62,239) 639 (61,744) 3,358
Other revenue 1,707 6,573 10,568 16,671
----------- ----------- ----------- -----------
Total revenues 326,244 302,665 1,178,658 931,561
BENEFITS AND EXPENSES:
Claims and other policy benefits 229,684 168,611 776,763 552,415
Interest credited 43,898 38,821 127,141 111,178
Policy acquisition costs and other insurance expenses 49,324 44,824 155,233 130,566
Other operating expenses 19,408 14,094 51,162 41,176
Interest expense 2,475 2,228 6,704 6,440
----------- ----------- ----------- -----------
Total benefits and expenses 344,789 268,578 1,117,003 841,775
----------- ----------- ----------- -----------
Income (loss) before income taxes and minority interest (18,545) 34,087 61,655 89,786
Provision (benefit) for income taxes (4,950) 12,311 27,166 32,279
----------- ----------- ----------- -----------
Income (loss) from continuing operations before minority
interest (13,595) 21,776 34,489 57,507
Minority interest in earnings of consolidated subsidiaries 342 151 801 457
----------- ----------- ----------- -----------
Income (loss) from continuing operations (13,937) 21,625 33,688 57,050
Discontinued operations:
(Loss) on discontinued accident and health operations,
net of taxes (3,212) (968) (8,204) (1,266)
----------- ----------- ----------- -----------
Net income/(loss) $ (17,149) $ 20,657 $ 25,484 $ 55,784
=========== =========== =========== ===========
Earnings/(loss) per share from continuing operations:
Basic earnings per share $ (0.31) $ 0.48 $ 0.74 $ 1.39
=========== =========== =========== ===========
Diluted earnings per share $ (0.31) $ 0.47 $ 0.73 $ 1.38
=========== =========== =========== ===========
Earnings/(loss) per share from net income:
Basic earnings per share $ (0.38) $ 0.46 $ 0.56 $ 1.36
=========== =========== =========== ===========
Diluted earnings per share $ (0.38) $ 0.45 $ 0.56 $ 1.35
=========== =========== =========== ===========
Weighted average number of diluted shares outstanding
(in thousands) 45,311 45,788 45,854 41,474
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
------------------------
1999 1998
----------- -----------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income $ 25,484 $ 55,784
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in:
Accrued investment income 3,504 (33,618)
Premiums receivable (159,719) (75,846)
Deferred policy acquisition costs (111,722) (52,111)
Funds withheld 10,457 (69,046)
Reinsurance ceded balances (31,554) 28,977
Future policy benefits, other policy claims and benefits, and
other reinsurance balances 311,234 245,705
Deferred income taxes 42,032 24,041
Other assets and other liabilities 88,321 (23,597)
Amortization of goodwill and value of business acquired 647 1,171
Amortization of net investment discounts (17,967) (11,327)
Realized investment (gains)/losses, net 61,744 (3,358)
Minority interest in earnings 799 464
Other, net 1,816 (11)
----------- -----------
Net cash provided by operating activities 225,076 87,228
INVESTING ACTIVITIES:
Sales of investments:
Fixed maturity securities - Available for sale 2,706,080 307,622
Mortgage loans 4,543 -
Maturities of fixed maturity securites - Available for sale 37,075 32,252
Purchases of fixed maturity securities - Available for sale (1,355,448) (1,399,701)
Cash invested in:
Mortgage loans (51,954) (63,516)
Policy loans (93,371) (6,155)
Funds withheld at interest (27,466) (20,104)
Principal payments on:
Mortgage loans 15,159 7,914
Policy loans - 14,752
Change in short-term and other invested assets 187,623 113,532
----------- -----------
Net cash provided (used) by investing activities 1,422,241 (1,013,404)
FINANCING ACTIVITIES:
Dividends to stockholders (7,274) (5,141)
Proceeds from stock offering - 221,837
Reissuance of treasury stock 454 627
Exchange of voting for non-voting shares (665) -
Excess deposits (withdrawls) on universal life and other
investment type policies and contracts (1,616,479) 694,839
Proceeds from debt issuance 75,000 -
----------- -----------
Net cash provided (used) by financing activities (1,548,964) 912,162
Effect of exchange rate changes 59 1,104
----------- -----------
Change in cash and cash equivalents 98,412 (12,910)
Cash and cash equivalents, beginning of period 15,966 37,395
----------- -----------
Cash and cash equivalents, end of period $ 114,378 $ 24,485
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited, condensed, consolidated financial statements of
Reinsurance Group of America, Incorporated and Subsidiaries (the "Company") have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
for the year ended December 31, 1998, as amended.
The Company has reclassified the presentation of certain prior period segment
information to conform to the 1999 presentation. The condensed consolidated
statements of income for all periods presented have been restated, as
appropriate, to reflect the accident and health division being reported as a
discontinued operation.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share on income from continuing operations (in thousands except per share
information):
------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------------------------------------------------------------
Earnings:
Income (loss) from continuing operations
(numerator for basic and diluted
calculations) ($13,937) $21,625 $33,688 $57,050
Shares:
Weighted average outstanding shares
(denominator for basic calculation) 45,311 45,279 45,331 41,019
Equivalent shares from outstanding stock
options (denominator for diluted
calculation) -- 509 523 455
------------------------------------------------------------------------
Denominator for diluted calculation 45,311 45,788 45,854 41,474
Earnings (loss) per share:
Basic ($0.31) $ 0.48 $ 0.74 $ 1.39
Diluted ($0.31) $ 0.47 $ 0.73 $ 1.38
------------------------------------------------------------------------
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The calculation of diluted earnings per share does not include common stock
equivalent shares whose impact would be antidilutive. For the three months ended
September 30, 1999, approximately 0.3 million outstanding stock options were not
included in the calculation of common equivalent shares as their respective
exercise prices were greater than the average market price. These options were
outstanding at the end of period.
3. COMPREHENSIVE INCOME
The following schedule reflects the change in accumulated other comprehensive
income for the three and nine month periods ending September 30, 1999 and 1998
(dollars in thousands):
------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------------------------------------------------------------
Net income $(17,149) $20,657 $ 25,484 $ 55,784
Accumulated other comprehensive
Income (expense), net of tax:
Unrealized gains (losses) on securities (30,278) 10,601 (120,074) 18,751
Foreign currency items (301) (5,208) 78 (6,851)
------------------------------------------------------------------------
Comprehensive income $(47,728) $26,050 $(94,512) $ 67,684
------------------------------------------------------------------------
4. SEGMENT INFORMATION
The accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies in Note 2 of the 1998 Annual Report.
The Company measures segment performance based on profit or loss from operations
before income taxes and minority interest. There are no intersegment
transactions and the Company does not have any material long-lived assets.
Investment income is allocated to the segments based upon average assets and
related capital levels deemed appropriate to support the segment business
volumes.
The Company's reportable segments are strategic business units that are
segregated by geographic region. Total revenues from continuing operations are
reflected by major product divisions between reinsurance and direct insurance.
Total revenues are primarily from external customers with significant
intercompany activity eliminated through consolidation. Information related to
revenues and income (loss) before income taxes and minority interest of the
Company's continuing operations are summarized below (in thousands).
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------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------------------------------------------------------------
REVENUES
Reinsurance:
U.S. $213,816 $226,253 $ 835,978 $702,920
Canada 56,954 32,231 163,990 95,048
Latin America 9,523 12,507 49,000 39,720
Asia Pacific 19,380 15,136 53,410 41,822
Other international 8,191 2,707 20,601 4,909
------------------------------------------------------------------------
Total reinsurance revenues 307,864 288,834 1,122,979 884,419
Total direct revenues (Latin America) 16,438 10,555 45,469 39,927
Corporate 1,942 3,276 10,210 7,215
------------------------------------------------------------------------
Total from continuing operations $326,244 $302,665 $1,178,658 $931,561
------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST
Reinsurance:
U.S. $(23,884) $ 33,017 $46,705 $ 85,074
Canada 9,997 1,814 27,165 10,945
Latin America 2,128 1,506 4,025 2,413
Asia Pacific (217) (1) (7,987) 152
Other international (2,279) (1,099) (3,512) (3,507)
Corporate (4,290) (1,150) (4,741) (5,291)
------------------------------------------------------------------------
Total from continuing operations $(18,545) $ 34,087 $ 61,655 $ 89,786
------------------------------------------------------------------------
During the third quarter of 1999, U.S. segment assets decreased by approximately
$1.5 billion primarily due to the recapture of funding agreement business by
General American Life Insurance Company ("General American"), a wholly-owned
subsidiary of GenAmerica Corporation ("GenAmerica"), the Company's majority
shareholder. There have been no other material changes in reportable segment
assets from the amounts disclosed in Note 16 of the 1998 Annual Report.
5. SIGNIFICANT TRANSACTIONS
New Reinsurance Agreement
During 1999, the Company entered into a new agreement reinsuring a market value
adjusted annuity product. Pursuant to the terms of the reinsurance agreement,
the annuity liabilities and funds supporting the liabilities are withheld by the
ceding company. To reflect the Company's obligations under the agreement, the
amounts withheld have been reflected in "Funds withheld at interest" and
"Interest sensitive contract liabilities" on the balance sheet. As of September
30, 1999, approximately $294.4 million and $303.2 million related to this
agreement have been included in funds withheld at interest and interest
sensitive contract liabilities, respectively.
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The Company subsequently retrocedes approximately 5/12ths of this business to a
GenAmerica subsidiary and 2/12ths to another retrocessionaire. The Company
reports the effect of the retrocessions by reflecting a net receivable or
payable from/to the retrocessionaires in other reinsurance balances. The
underlying product reinsured by the Company provides the contract holder with a
minimum return guarantee over the life of the product. The Company shares in
this guarantee, which is mitigated by applicable surrender charges over the
first ten years of the contract, pursuant to the reinsurance agreement.
Recapture Transaction
Effective September 29, 1999, General American completed the recapture of the
entire block of General American's funding agreement business reinsured by the
Company. Prior to the recapture, the Company reinsured approximately 25% of
General American's funding agreement business. Pursuant to the recapture
transaction, the Company transferred all remaining liabilities related to the
funding agreement business and an equivalent amount of assets to General
American. Over the course of the third quarter of 1999, the Company transferred
to General American approximately $1.8 billion in assets, including $1.5 billion
in connection with the recapture. Those assets, consisting primarily of
investments in fixed maturity securities and cash, were transferred in
satisfaction of $1.8 billion in funding agreement liabilities. Associated with
the liquidation of investment securities and the transfer of assets to General
American during the third quarter of 1999, the Company incurred an after tax net
capital loss of approximately $33.2 million, including $26.0 million associated
with the recapture transaction.
6. NEW ACCOUNTING STANDARD
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," effective upon issuance. SFAS No. 137
amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," deferring the effective date to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS No. 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. It also requires that gains or losses resulting from changes in the
values of those derivatives be reported depending on the use of the derivative
and whether it qualifies for hedge accounting. The Company continues to evaluate
the effect, if any, of the implementation of SFAS No. 133 on the results of
operation, financial position, or liquidity.
7. SPECIAL SHAREHOLDERS MEETING
On September 14, 1999, the Company held a special shareholders' meeting at which
an amendment to the Company's restated articles of incorporation, as amended,
was approved which converted 7,417,496 shares of non-voting common stock into
7,194,971 shares of voting common stock, with cash paid in lieu of any
fractional shares.
8. LONG TERM DEBT
The Company entered into a term loan agreement dated as of June 1, 1999 with
General American, whereby it borrowed $75.0 million to continue expansion of the
Company's business. Interest on
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the term loan will be payable quarterly at 100 basis points over the British
Bankers' Association three month LIBOR rate. The term loan matures on June 30,
2004.
9. ADMINISTRATIVE SUPERVISION AND SALE OF GENAMERICA
On August 10, 1999, General American became subject to an order of
administrative supervision from the Missouri Department of Insurance (the
"Department"). This action arose from General American's inability to meet
substantial demands for surrenders of its funding agreement business, also known
as stable value business, without jeopardizing interests of its other
policyholders. General American stated that the unexpected high volume of
withdrawal requests from its funding agreement investors created severe pressure
on General American's liquidity position and its ability to convert assets
within the tight timeframe required. General American stated that it sought
additional time to respond to the requests of the funding agreement clients,
making certain all obligations were honored.
The funding agreement withdrawal activity stemmed from developments associated
with the ratings of General American and ARM Financial Group, Inc., a financial
services company which marketed a highly specialized portfolio of funding
agreements products to institutional investors. In late July, Moody's Investor
Services downgraded General American's financial strength rating from A2 to A3.
The downgrade caused a significant number of funding agreement investors to
recall their funds over a short period of time, creating the liquidity
pressures. Moody's further lowered General American's rating to Ba1 on August 9,
1999 and B1 on August 12, 1999. Moody's traditionally has rated RGA Reinsurance
with the same financial strength as General American. As of October 29, 1999,
Moody's, Standard & Poor's, and A.M. Best rated RGA Reinsurance Ba3, BB and B++,
respectively.
On August 26, 1999, GenAmerica announced a definitive agreement whereby
Metropolitan Life Insurance Company ("MetLife") will acquire GenAmerica,
including GenAmerica's beneficial ownership of approximately 53% of the
outstanding shares of the Reinsurance Group of America, Incorporated ("RGA"),
for approximately $1.2 billion. The transaction is expected to be completed in
the fourth quarter of 1999 or first quarter of 2000, and is subject to
regulatory and judicial approval.
RGA Reinsurance Company, the primary operating subsidiary of the Company ("RGA
Reinsurance"), served as a reinsurer to General American for approximately 25
percent of funding agreement deposits. Effective September 29, 1999, General
American completed the recapture of the entire block of General American's
funding agreement business reinsured by the Company. As a result of the
recapture transaction, RGA Reinsurance no longer retains any obligations related
to General American's funding agreement business. The funding agreement business
contributed to the Company's pre-tax earnings in the amount of approximately $4
million during 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company has five main operating segments segregated primarily by geographic
region: U.S., Canada, Latin America, Asia Pacific, and other international
operations. The U.S. operations provide traditional life reinsurance and
non-traditional reinsurance to domestic clients. Non-traditional business
includes asset-intensive and financial reinsurance. Asset-intensive products
include reinsurance of funding agreement products, bank-owned life insurance,
and annuities. As of September 30, 1999, the Company no longer reinsures funding
agreement products. The Canada operations provide insurers with traditional
reinsurance as well as assistance with capital management activity. The Latin
America operations include direct life insurance through a joint venture and
subsidiaries in Chile and Argentina. The Latin America operations also include
traditional reinsurance and reinsurance of privatized pension products primarily
in Argentina. Asia Pacific operations provide primarily traditional life
reinsurance through RGA Reinsurance Company of Australia, Limited ("RGA
Australia") and RGA Reinsurance. Other international operations include
traditional business from Europe and South Africa, in addition to other markets
being developed by the Company. The operating segment results do not include the
corporate investment activity, general corporate expenses, interest expense of
RGA, and the provision for income tax expense (benefit). In addition, the
Company's discontinued accident and health operations are not reflected in the
continuing operations of the Company. The Company measures segment performance
based upon profit or loss from operations before income taxes and minority
interest.
Consolidated income from continuing operations before income taxes and minority
interest for the third quarter and first nine months of 1999 decreased $52.6
million and $28.1 million, respectively, as compared to the prior-year periods.
After tax diluted earnings (losses) per share from continuing operations were
($0.31) and $0.73 for the third quarter and first nine months of 1999,
respectively, compared with $0.47 and $1.38 for the comparable 1998 periods. The
decrease in earnings for the third quarter and nine months was attributed
primarily to realized capital losses associated with the recapture by General
American of all funding agreement business reinsured by the Company. Excluding
realized capital losses, consolidated income from continuing operations before
income taxes and minority interest for the third quarter and first nine months
of 1999 increased $10.2 million and $37.0 million, respectively, as compared to
the prior-year periods.
For the year ended December 31, 1998, all reinsurance arrangements with General
American represented approximately 5% of the Company's consolidated earnings.
Due primarily to capital losses associated with the recapture of the funding
agreement business, reinsurance arrangements with General American resulted in a
pre-tax loss of approximately $49 million for the nine months ended September
30, 1999.
Further discussion and analysis of the results for 1999 compared to 1998 are
presented by segment.
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U.S. OPERATIONS (dollars in thousands)
FOR THE THREE MONTH PERIOD ENDING SEPTEMBER 30, 1999
----------------------------------------------------------------
TRADITIONAL NON-TRADITIONAL TOTAL
ASSET- FINANCIAL U.S.
INTENSIVE REINSURANCE
----------------------------------------------------------------
REVENUES:
Net premiums $ 207,125 $ (62) $ - $ 207,063
Investment income, net of related expenses 30,678 36,851 - 67,529
Realized investment gains (losses), net (9,413) (53,065) - (62,478)
Other revenue (1,526) (18) 3,246 1,702
----------------------------------------------------------------
Total revenues 226,864 (16,294) 3,246 213,816
BENEFITS AND EXPENSES:
Claims and other policy benefits 153,635 167 - 153,802
Interest credited 9,752 33,319 - 43,071
Policy acquisition costs and other insurance
expenses 31,045 727 2,371 34,143
Other operating expenses 6,415 231 38 6,684
----------------------------------------------------------------
Total benefits and expenses 200,847 34,444 2,409 237,700
Income before income taxes and minority
interest $ 26,017 $ (50,738) $ 837 $ (23,884)
----------------------------------------------------------------
FOR THE THREE MONTH PERIOD ENDING SEPTEMBER 30, 1998
----------------------------------------------------------------
TRADITIONAL NON-TRADITIONAL TOTAL
ASSET- FINANCIAL U.S.
INTENSIVE REINSURANCE
----------------------------------------------------------------
REVENUES:
Net premiums $ 160,424 $ 327 $ - $ 160,751
Investment income, net of related expenses 25,354 33,555 - 58,909
Realized investment gains, net 453 144 - 597
Other revenue 113 - 5,883 5,996
----------------------------------------------------------------
Total revenues 186,344 34,026 5,883 226,253
BENEFITS AND EXPENSES:
Claims and other policy benefits 117,964 552 - 118,516
Interest credited 10,467 28,101 - 38,568
Policy acquisition costs and other insurance
expenses 26,207 1,894 3,906 32,007
Other operating expenses 3,927 185 33 4,145
----------------------------------------------------------------
Total benefits and expenses 158,565 30,732 3,939 193,236
Income before income taxes and minority
interest $ 27,779 $ 3,294 $ 1,944 $ 33,017
----------------------------------------------------------------
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FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1999
----------------------------------------------------------------
TRADITIONAL NON-TRADITIONAL TOTAL
ASSET- FINANCIAL U.S.
INTENSIVE REINSURANCE
----------------------------------------------------------------
REVENUES:
Net premiums $ 696,220 $ 781 $ - $ 697,001
Investment income, net of related expenses 90,511 110,471 - 200,982
Realized investment gains (losses), net (14,988) (56,439) - (71,427)
Other revenue (1,521) 801 10,142 9,422
----------------------------------------------------------------
Total revenues 770,222 55,614 10,142 835,978
BENEFITS AND EXPENSES:
Claims and other policy benefits 529,317 897 - 530,214
Interest credited 29,212 95,958 - 125,170
Policy acquisition costs and other insurance 106,192 2,695 7,434 116,321
expenses
Other operating expenses 16,889 583 96 17,568
----------------------------------------------------------------
Total benefits and expenses 681,610 100,133 7,530 789,273
Income before income taxes and minority
interest $ 88,612 $ (44,519) $ 2,612 $ 46,705
----------------------------------------------------------------
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1998
----------------------------------------------------------------
TRADITIONAL NON-TRADITIONAL TOTAL
ASSET- FINANCIAL U.S.
INTENSIVE REINSURANCE
----------------------------------------------------------------
REVENUES:
Net premiums $ 514,961 $ 1,014 $ - $ 515,975
Investment income, net of related expenses 78,296 92,286 - 170,582
Realized investment gains, net 1,717 981 - 2,698
Other revenue 4 - 13,661 13,665
----------------------------------------------------------------
Total revenues 594,978 94,281 13,661 702,920
BENEFITS AND EXPENSES:
Claims and other policy benefits 391,052 2,851 - 393,903
Interest credited 33,064 77,321 - 110,385
Policy acquisition costs and other insurance 86,722 4,503 9,852 101,077
expenses
Other operating expenses 11,827 555 99 12,481
----------------------------------------------------------------
Total benefits and expenses 522,665 85,230 9,951 617,846
Income before income taxes and minority
interest $ 72,313 $ 9,051 $ 3,710 $ 85,074
----------------------------------------------------------------
During the third quarter and first nine months of 1999, income before income
taxes and minority interest for U.S. operations decreased 172.3% and 45.1%,
respectively, over the comparable prior-year periods. The decrease is primarily
due to the realized loss recognized on the recapture of the General American
funding agreement product. During the third quarter and first nine months of
1999, operating income before realized losses increased 19.0% and 43.4%,
respectively, over the comparable prior-year periods. These increases are
primarily the result of the growth of the business and good mortality experience
on the core traditional block of business. U.S. operations include traditional
and non-traditional reinsurance. The components
13
14
of non-traditional reinsurance are asset-intensive and financial reinsurance.
Traditional reinsurance accounts for the majority of the growth in this segment.
Traditional Reinsurance
The U.S. traditional reinsurance subsegment is the oldest and largest subsegment
of the Company. This subsegment provides life reinsurance to domestic clients
for a variety of life products through yearly renewable term agreements,
coinsurance, and modified coinsurance arrangements. These reinsurance
arrangements may be either facultative or automatic agreements. During the third
quarter and first nine months of 1999, production remained relatively constant,
totaling $17.7 billion and $70.2 billion, respectively, of new assumed in-force,
compared to $17.3 billion and $72.9 billion for the same periods in 1998.
Production levels are significantly influenced by large transactions and
reporting practices of ceding companies and, therefore, can fluctuate from
period to period. Management believes industry consolidation, demutualizations,
and the trend towards reinsuring mortality risks should continue to provide
reinsurance opportunities, although the level of production is uncertain.
Income before income taxes and minority interest for U.S. traditional
reinsurance decreased 6.3% and increased 22.5% in the third quarter and first
nine months of 1999, respectively. The decrease in income for the quarter was
primarily due to the realized losses of $9.4 million on securities transactions.
The increases in income for the year were primarily attributable to strong
premium growth, an increase in investment income and favorable mortality
experience.
Net premiums for U.S. traditional reinsurance rose 29.1% and 35.2% in the third
quarter and first nine months of 1999. New premium on in-force blocks of
business, renewal premium on existing blocks of business and new business
premiums from facultative and automatic treaties all contributed to this growth.
Premium levels are significantly influenced by large transactions and reporting
practices of ceding companies and therefore can fluctuate from period to period.
Net investment income increased 21.0% and 15.6% in the third quarter and first
nine months of 1999. The increases were due to the continued growth of business
in this subsegment which resulted in an increase of the invested asset base,
which included total investments, cash, and accrued investment income, to $2.0
billion at September 30, 1999 from $1.9 billion at September 30, 1998.
Realized investment losses of approximately $15.0 million were reported for the
first nine months of 1999. These losses included the write-off of the Company's
investment in Thomson Barrett Organization PLC ("TBO"), a 20% owned entity. TBO
was an international financial services consulting firm specializing in the
development of distributions systems. In September, the Company relinquished its
20% interest in TBO for nominal consideration to the other shareholders.
Collaborative Strategies, Incorporated ("CSI"), a GenAmerica subsidiary, assumed
a portion of the debt of TBO in exchange for certain assets, including the
employees, and businesses of TBO. The Company then discharged the debt of TBO
and CSI in exchange for future profits on certain business initiatives. The
Company does not expect any future profits to materialize related to these
initiatives. Therefore, the Company wrote-off its entire investment
14
15
related to this business in June 1999. The Company also recorded capital gains
associated with the sale of some investments as well as capital losses
recognized on permanent write-downs of various securities.
The amount of claims and other policy benefits increased 30.2% and 35.4% in the
third quarter and first nine months of 1999, primarily resulting from the
increased size of the inforce blocks of business. Claims and other policy
benefits, as a percentage of net premiums, were 74.2% and 76.0% in the third
quarter and first nine months of 1999, respectively, compared to 73.5% and 75.9%
in prior-year periods. Mortality is expected to fluctuate somewhat from period
to period, but remains fairly constant over the long term.
Interest credited relates to amounts credited on the Company's cash value
products in this subsegment, which have a significant mortality component. This
amount fluctuates with the changes in cash surrender value and changes in
interest crediting rates.
The amount of policy acquisition costs and other insurance expenses rose 18.5%
and 22.5% in the third quarter and first nine months of 1999, respectively, over
the comparable prior-year periods. As a percentage of net premiums, policy
acquisition costs and other insurance expenses were 15.0% and 15.3% for the
third quarter and first nine months of 1999, respectively, compared to 16.3% and
16.8% in the prior-year periods. The decreases were primarily attributable to a
change in the mix of business that resulted in less acquisition costs during the
current periods.
Other operating expenses increased 63.4% and 42.8% in the third quarter and the
first nine months of 1999. The increase was primarily due to increases in costs
associated with the growth of the business and an increase in corporate costs
that are allocated based on premium or revenues. Other operating expenses for
the third quarter and first nine months of 1999 and 1998 remained relatively
constant as a percentage of net premiums.
Asset-Intensive Reinsurance
The U.S. asset-intensive reinsurance subsegment includes the reinsurance of
funding agreement products, annuities, and bank-owned life insurance. As of
September 30, 1999, the Company no longer reinsures funding agreement products.
Most of these agreements are coinsurance or modified coinsurance of
non-mortality risks such that the Company recognizes profits or losses primarily
from the spread between the investment earnings and the interest credited on the
underlying deposit liabilities.
Income before income taxes and minority interest decreased significantly in the
third quarter and first nine months of 1999, respectively. The funding agreement
business was primarily responsible for the decrease in earnings. In the first
nine months, funding agreement had a net loss before income taxes and minority
interest of approximately $47.6 million. The Company's parent, General American,
recaptured the business during the month of September. Total after-tax capital
losses of approximately $33.2 million were incurred in connection with
liquidating securities and the recapture by General American. Net premiums
reported in this subsegment
15
16
relate to a yearly renewable term treaty that reinsures the mortality risk of a
bank-owned life insurance product. Policy acquisition costs and other insurance
expenses relate primarily to the commission payments and premium taxes (if
applicable) on deposits received.
Financial Reinsurance
The U.S. financial reinsurance subsegment includes net fees earned on financial
reinsurance agreements and the equity in the unconsolidated results from the
Company's ownership in RGA/Swiss Financial Group, L.L.C. ("RGA/Swiss").
Financial reinsurance agreements represent low mortality risk business that the
Company assumes and subsequently retrocedes with a net fee earned on the
transaction. The fees earned from the assumption of the financial reinsurance
contracts are reflected in other revenues, and the fees paid to
retrocessionaires are reflected in policy acquisition costs and other insurance
expenses.
Income before income taxes and minority interest decreased to $0.8 million and
$2.6 million in the third quarter and first nine months of 1999, as compared to
$1.9 million and $3.7 million in the prior-year periods. These results were
primarily attributable to the decrease in earnings from RGA/Swiss and the net
fees earned on financial reinsurance agreements. A decrease in outstanding
statutory financial reinsurance also contributed to the earnings decrease.
Policy acquisition costs and other insurance expenses include fees paid for the
subsequent retrocession of these financial reinsurance transactions.
CANADA OPERATIONS (dollars in thousands)
------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------------------------------------------------------------------
REVENUES:
Net premiums $42,763 $25,704 $119,636 $ 75,058
Investment income, net of related
expenses 14,153 6,558 38,125 19,034
Realized investment gains, net - - 6,253 617
Other revenue 38 (31) (24) 339
------------------------------------------------------------------------------
Total revenues 56,954 32,231 163,990 95,048
BENEFITS AND EXPENSES:
Claims and other policy benefits 37,072 25,063 112,890 69,394
Interest credited 451 216 1,356 677
Policy acquisition costs and other
insurance expenses 7,442 3,714 17,161 9,208
Other operating expenses 1,992 1,424 5,418 4,824
------------------------------------------------------------------------------
Total benefits and expenses 46,957 30,417 136,825 84,103
Income before income taxes and
minority interest $ 9,997 $ 1,814 $ 27,165 $ 10,945
------------------------------------------------------------------------------
16
17
Income before income taxes and minority interest increased 451.1% and 148.2% in
the third quarter and first nine months of 1999, respectively. Excluding
realized investment gains, income before income taxes and minority interest
increased 451.1% and 102.5% in the third quarter and first nine month of 1999,
respectively. The increases were driven by a growth in premiums and investment
income and favorable mortality for the quarter and year to date. In addition,
reporting on a large in-force block obtained late in 1998 was refined based upon
better information received from the client. The investment gains were realized
in the second quarter to realign the investment portfolio to achieve a better
match of asset and liability cash flows. The effects of changes in the foreign
exchange rate during 1999 compared to 1998 are not material.
Net premiums increased 66.4% and 59.4% in the third quarter and first nine
months of 1999, respectively. The increases were the result of several major
treaties being signed in 1998 that generated new premiums in the fourth quarter
of 1998 and in 1999, as well as renewal premiums generated by the segment's
production throughout 1998. Net premium levels for the fourth quarter of 1999
are expected to be in line with those experienced during the first three
quarters. The comparable growth in the fourth quarter premiums will be impacted
by the major treaties signed in the fourth quarter of 1998. Premium levels are
significantly influenced by large transactions and reporting practices of ceding
companies and therefore can fluctuate from period to period. Net investment
income increased 115.8% and 100.3% in the third quarter and first nine months of
1999 due to an increase in the invested asset base. The invested asset base
growth was due to operating cash flows on traditional reinsurance, proceeds from
capital contributions made to the segment, and interest on the growth of funds
withheld at interest related to a large in-force block added in 1998.
Claims and other policy benefits increased 47.9% and 62.7% during the third
quarter and first nine months of 1999. Claims and other policy benefits as a
percentage of net premiums were 86.7% and 94.4% in the third quarter and first
nine months of 1999 compared to 97.5% and 92.5% in the prior-year periods. The
lower percentage in the third quarter is the result of refined reporting on a
large in-force block received in late 1998 based on new information and better
than expected mortality for the quarter. The increased percentages experienced
for the nine months are primarily the result of several large in-force blocks
added in 1998. These blocks are mature blocks of level premium business in which
mortality as a percentage of premiums is expected to be higher than the
historical ratios. Investment income on the accumulated assets supporting the
reserve liabilities together with renewal premiums are sufficient to provide an
appropriate profit margin. Mortality is expected to fluctuate somewhat from
period to period but remains fairly constant over the long term.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums totaled 17.4% and 14.3% in the third quarter and first nine months of
1999, respectively, compared to 14.4% and 12.3% in the prior year periods. The
increase in ratios is primarily due to the changing mix of business to
coinsurance from yearly renewable term agreements. These coinsurance agreements
tend to have higher commission costs compared to yearly renewable term
agreements.
17
18
LATIN AMERICA OPERATIONS (dollars in thousands)
FOR THE THREE MONTH PERIOD ENDING SEPTEMBER 30, 1999
TOTAL LATIN
DIRECT REINSURANCE AMERICA
REVENUES:
Net premiums $ 11,615 $ 6,624 $ 18,239
Investment income (loss), net of related expenses 4,797 3,025 7,822
Realized investment gains, net - - -
Other revenue 26 (126) (100)
--------------------------------------------------
Total revenues 16,438 9,523 25,961
BENEFITS AND EXPENSES:
Claims and other policy benefits 11,968 7,517 19,485
Interest credited (1) 377 376
Policy acquisition costs and other insurance expenses 837 532 1,369
Other operating expenses 2,369 234 2,603
--------------------------------------------------
Total benefits and expenses 15,173 8,660 23,833
Income before income taxes and minority interest $ 1,265 $ 863 $ 2,128
--------------------------------------------------
FOR THE THREE MONTH PERIOD ENDING SEPTEMBER 30, 1998
TOTAL LATIN
DIRECT REINSURANCE AMERICA
REVENUES:
Net premiums $ 9,498 $ 11,612 $ 21,110
Investment income, net of related expenses 829 895 1,724
Other revenue 228 - 228
--------------------------------------------------
Total revenues 10,555 12,507 23,062
BENEFITS AND EXPENSES:
Claims and other policy benefits 7,127 9,794 16,921
Interest credited 37 - 37
Policy acquisition costs and other insurance expenses 1,036 553 1,589
Other operating expenses 2,182 827 3,009
--------------------------------------------------
Total benefits and expenses 10,382 11,174 21,556
Income before income taxes and minority interest $ 173 $ 1,333 $ 1,506
--------------------------------------------------
18
19
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1999
TOTAL LATIN
DIRECT REINSURANCE AMERICA
REVENUES:
Net premiums $ 33,882 $ 44,598 $ 78,480
Investment income, net of related expenses 11,471 4,260 15,731
Realized investment gains, net 12 268 280
Other revenue 104 (126) (22)
--------------------------------------------------
Total revenues 45,469 49,000 94,469
BENEFITS AND EXPENSES:
Claims and other policy benefits 35,096 42,645 77,741
Interest credited 239 377 616
Policy acquisition costs and other insurance expenses 2,911 1,190 4,101
Other operating expenses 5,575 2,411 7,986
--------------------------------------------------
Total benefits and expenses 43,821 46,623 90,444
Income before income taxes and minority interest $ 1,648 $ 2,377 $ 4,025
--------------------------------------------------
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1998
TOTAL LATIN
DIRECT REINSURANCE AMERICA
REVENUES:
Net premiums $ 35,072 $ 37,035 $ 72,107
Investment income, net of related expenses 4,675 2,685 7,360
Other revenue 180 - 180
--------------------------------------------------
Total revenues 39,927 39,720 79,647
BENEFITS AND EXPENSES:
Claims and other policy benefits 30,650 33,712 64,362
Interest credited 116 - 116
Policy acquisition costs and other insurance expenses 3,023 1,511 4,534
Other operating expenses 5,532 2,690 8,222
--------------------------------------------------
Total benefits and expenses 39,321 37,913 77,234
Income before income taxes and minority interest $ 606 $ 1,807 $ 2,413
--------------------------------------------------
For the Latin America operations, income before income taxes and minority
interest increased 41.3% in the third quarter and 66.8% in the first nine months
of 1999 compared to the same periods in 1998. For the first nine months of 1999,
results improved in the reinsurance operations with continued profitability in
the reinsurance of privatized pensions in Argentina and developing business in
Mexico. While direct insurance business in Chile continued to be profitable, the
Company has begun exploring the possibility of selling its Chilean direct
writing operations. The Company is considering this sale in an effort to focus
on reinsurance business as opposed to direct distribution.
19
20
Direct Insurance
For the third quarter of 1999, the Latin America direct business reported income
before income taxes and minority interest of $1.3 million compared to $0.2
million for the same period in 1998. For the first nine months of 1999, the
income before taxes and minority interest for the Latin America direct business
increased approximately $1.0 million.
Premiums increased in Chile and Argentina during the third quarter, however
decreased during the first nine months of 1999 compared to the same periods in
1998. In Chile, the sales of annuities have been decreasing due to sluggish
market conditions. Although direct premiums from privatized pensions in
Argentina have decreased as no new contracts were sold since September 1998, the
loss in business was partially off-set by a new contract in group life.
Investment income more than doubled during the third quarter and the first nine
months of 1999. The invested assets for the subsidiaries have increased with
growth in the business and capital contributions from RGA. In addition, the
appreciation of Chilean investment balances that are index-denominated are
included in investment income.
Claims and other policy benefits increased 67.9% during the third quarter and
14.5% during the first nine months of 1999 as a result of continued growth in
the Chilean and Argentine business compared to the level for the same period in
prior year. In addition, Chilean reserves are index-denominated, similar to the
investments, therefore the appreciation in the index will contribute to the
increase in the claims and other policy benefits. Interest credited represents
amounts credited on Argentine universal life products.
Policy acquisition costs and other insurance expenses decreased 19.2% during the
third quarter and 3.7% during the first nine months of 1999 compared to the same
periods in 1998. As a percentage of net premiums, policy acquisition costs and
other insurance expenses represented 7.2% and 8.6% for the third quarter and
first nine months of 1999, respectively, compared to 10.9% and 8.6% in the prior
year periods. The percentages can fluctuate due to variations in the mixture of
business being written in Argentina and Chile. Other operating expenses
increased $0.2 million during the third quarter of 1999, but remained fairly
consistent for the first nine months of 1999 compared to the same period in
1998.
Reinsurance
Income before income taxes and minority interest decreased $0.5 million during
the third quarter, but showed an increase of $0.6 million during the first nine
months of 1999. Results were driven by the reinsurance business from privatized
pensions in Argentina and developing business in Mexico.
Net premiums decreased $5.0 million during the third quarter of 1999, however,
but increased $7.6 million for the first nine months of 1999. The overall growth
was primarily from an increase in privatized pension reinsurance in Argentina
while the decrease in premiums for the quarter was due to reduced quota share
participation in several privatized pension contracts in
20
21
Argentina, effective July 1, 1999. In general, the number of active treaties has
decreased, however, overall premiums and profitability are expected to remain at
comparable levels.
Net investment income increased during the third quarter and first nine months
of 1999 as a result of the timing of cash flows and adjustments to the segments
allocated investment income. Investment income for RGA Reinsurance is allocated
to the various operating segments on the basis of net capital and investment
performance varies with the composition of investments.
The claims and other policy benefits for the reinsurance business decreased $2.3
million and increased $8.9 million during the third quarter and first nine
months of 1999, respectively. Claims and other policy benefits as a percentage
of net premiums totaled 113.5% and 95.6% for the third quarter and first nine
months of 1999 compared to 84.3% and 91.0% in the prior year periods,
respectively. This percentage fluctuates as claims related to the privatized
pensions in Argentina continue to develop. The Company expects mortality to
fluctuate somewhat from period to period, but believes it is fairly constant
over longer periods of time. The Company continues to monitor mortality trends
to determine the appropriateness of reserve levels.
Policy acquisition costs and other insurance expenses remained fairly level for
the third quarter and first nine months of 1999 compared to the same periods in
1998. Policy acquisition costs and other insurance expenses as a percentage of
net premiums represented 8.0% and 2.7% for the third quarter and first nine
months of 1999 compared to 4.8% and 3.1% in the prior year periods,
respectively. These percentages fluctuate primarily due to changes in the mix of
business.
ASIA PACIFIC OPERATIONS (dollars in thousands)
-----------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-----------------------------------------------------------------------
REVENUES:
Net premiums $18,867 $14,224 $51,188 $37,630
Investment income, net of related expenses
256 563 1,612 1,715
Realized investment gains, net - 0 (33) 1
Other revenue 257 349 643 2,476
------------------------------------------------------------------------
Total revenues 19,380 15,136 53,410 41,822
BENEFITS AND EXPENSES:
Claims and other policy benefits 14,078 6,513 41,242 21,669
Policy acquisition costs and other
insurance expenses 3,749 6,685 14,193 14,312
Other operating expenses 1,647 1,824 5,607 5,353
Interest expense 123 115 355 336
------------------------------------------------------------------------
Total benefits and expenses 19,597 15,137 61,397 41,670
(Loss) income before income taxes and
minority interest $ (217) $ (1) $(7,987) $ 152
------------------------------------------------------------------------
21
22
The Company conducts reinsurance business in the Asia Pacific region through
branch operations in Hong Kong, Japan, and a new a liaison office in Taiwan
opened during the first quarter of 1999. Business is also conducted through RGA
Australia, a wholly owned subsidiary in Australia. The principal types of
reinsurance provided in the region are life, critical care, superannuation, and
financial reinsurance.
The third quarter and first nine months of 1999 showed an increase in premiums
of 32.5% and 36.0%, respectively. For the third quarter of 1999, the loss before
income taxes and minority interest was in line with expectations, with premiums,
claims, and changes in reserves at expected levels. For the first nine months of
1999, the loss was caused by higher than expected claims and increases in
reserves in the first quarter. In addition, the discontinuance of a financial
reinsurance treaty with a Japanese issuer during the first quarter of 1999
negatively affected the segment's profitability.
Renewal premiums from the existing block of business, new business premiums from
facultative and automatic treaties, and premium flows from larger blocks of
business all contributed to the premium increase. Business premium levels are
significantly influenced by large transactions and reporting practices of ceding
companies and therefore can fluctuate from period to period. Net investment
income decreased during the third quarter and first nine months by 54.5% and
6.0%, respectively. Investment income for RGA Reinsurance is allocated to the
various operating segments on the basis of average net capital and investment
performance varies with the composition of investments and the relative
allocation of capital to units. Other revenue during 1998 represented profit and
risk fees associated with the financial reinsurance in Japan. A lower level of
fees were reported in the third quarter and were substantially lower in the
first nine months of 1999, as discussed above.
Claims and other policy benefits increased by 116.2% and 90.3% in the third
quarter and first nine months or 1999 compared to the prior year periods. Claims
and other policy benefits for 1999 include claims paid, claims in the course of
payment and establishment of additional reserves to provide for unreported
claims. Claims and other policy benefits as a percentage of net premiums
increased to 74.6% and increased to 80.6% in the third quarter and first nine
months of 1999, respectively, from 45.7% and 57.6% in 1998. The increase in the
third quarter was caused by an increase in the reserves for incurred but
unreported claims in Hong Kong and Japan. The large increase for the first nine
months was caused by several large claims in Japan and Hong Kong and the
establishment of additional reserves for unreported claims in Japan and
Australia. The Company expects mortality to fluctuate somewhat from period to
period, but believes it is fairly constant over longer periods of time. The
Company continues to monitor mortality trends to evaluate the appropriateness of
reserve levels and adjusts the reserve levels on a periodic basis.
Policy acquisition costs and other insurance expenses decreased 43.9% and 0.8%
in the third quarter and first nine months of 1999, respectively, versus the
prior year periods. Policy acquisition costs and other insurance expenses as a
percentage of net premiums were 19.9% and 27.7% in the third quarter and first
nine months of 1999 versus 46.9% and 38.0% in the prior year periods,
respectively. These percentages fluctuate due to the timing of client company
22
23
reporting and variations in the mixture of business being written in Asia
Pacific. In addition, the 1998 results include a higher level of charges
relating to the financial reinsurance in Japan, which was discontinued in the
first quarter of 1999. Other operating expenses for the third quarter and first
nine months of 1999 decreased to $1.6 million and increased to $5.6 million,
respectively. As a percentage of premiums, other operating expenses decreased to
8.7% and 11.0% in the third quarter and first nine months 1999 from 12.8% and
14.2% in the prior year periods. The Company believes that sustained growth in
premiums should lessen the burden of start-up expenses and expansion costs over
time.
OTHER INTERNATIONAL OPERATIONS (dollars in thousands)
------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------------------------------------------------------------
REVENUES:
Net premiums $ 8,148 $ 2,538 $ 19,298 $ 4,582
Investment income, net of related expenses 80 96 608 274
Realized investment gains, net 155 42 275 42
Other revenue (192) 31 420 11
------------------------------------------------------------------------
Total revenues 8,191 2,707 20,601 4,909
BENEFITS AND EXPENSES:
Claims and other policy benefits 5,247 1,598 14,676 3,087
Policy acquisition costs and other
insurance expenses 2,621 814 3,456 1,420
Other operating expenses 2,602 1,394 5,981 3,909
------------------------------------------------------------------------
Total benefits and expenses 10,470 3,806 24,113 8,416
Loss before income taxes and minority
interest $ (2,279) $ (1,099) $ (3,512) $ (3,507)
------------------------------------------------------------------------
The other international segment is the newest segment of the Company. This
segment provides life reinsurance to international clients throughout Europe and
South Africa. The principal type of reinsurance being provided has been life
reinsurance for a variety of life products through yearly renewable term and
coinsurance agreements. These agreements may be either facultative or automatic
agreements. The Company has efforts underway to license a life reinsurance
subsidiary in the United Kingdom. In addition, the Company has offices in Cape
Town and Johannesburg, South Africa.
Net premiums increased to $8.1 million and $19.3 million in the third quarter
and first nine months of 1999, respectively, primarily as a result of business
generated from an automatic treaty with a United Kingdom client. Investment
income for RGA Reinsurance is allocated to the
23
24
segment on the basis of average net capital and the investment performance
varies with the composition of investments.
Claims and other policy benefits are relatively flat as a percentage of premiums
at 64.4% and 76.1% in the third quarter and first nine months of 1999,
respectively, from 62.3% and 67.4% during the same periods in 1998. Year to year
comparisons of premiums and claims and other policy benefits are not considered
meaningful due to the start-up nature of this segment. Other operating expenses
increased $1.2 million and $2.1 million during the third quarter and first nine
months of 1999, respectively, compared to the same periods in 1998. The overall
increase in operating expenses was attributed to increases in costs associated
with the expansion efforts within the segment.
CORPORATE AND OTHER SELECTED CONSOLIDATED INFORMATION
Corporate activity generally represents investment income on the undeployed
proceeds from the Company's capital raising efforts and corporate investment
income allocation, corporate expenses that include unallocated overhead and
executive costs, as well as the interest on corporate debt. In addition, the
provision for income taxes is generally calculated based on the overall
operations of the Company.
Consolidated investment income from continuing operations increased 28.9% and
28.2% during the third quarter and first nine months of 1999, respectively.
Investment income will be negatively affected in the near future due to the
reduction in invested assets related to the recapture of the funding agreement
business by General American on September 29, 1999. The cost basis of invested
assets decreased $0.6 billion, or 12.9% from September 30, 1998. The decrease in
the invested assets was primarily a result of the recapture. This decrease was
offset, in part, by an increase in operating cash flows, new reinsurance
transactions involving asset-intensive products, and proceeds from the issuance
of $75.0 million of long-term debt to General American during the second
quarter. The average yield earned on investments was 6.87% and 6.97% for the
first nine months of 1999 and 1998, respectively. The decrease in overall yield
reflected a general decline in interest rates and the impact of the funding
agreement reinsurance product that are generally of a shorter duration and carry
a lower average yield. Investment income has been allocated to the operational
segments on the basis of average required capital per segment.
Consolidated other expenses represent general corporate expenses that are not
allocated to the operational segments.
Consolidated provision for income taxes for continuing operations decreased
140.2% and 15.8% for the third quarter and first nine months of 1999,
respectively, as a result of pre-tax losses for the quarter and lower pre-tax
income for the first nine months. The effective tax rates for the third quarter
and first nine months of 1999 were affected by significant realized capital
losses domestically and operating losses from foreign subsidiaries for which
deferred tax assets cannot be fully established. Excluding realized capital
losses, the effective tax rate would have been approximately 38.5% and 39.5% for
the third quarter and first nine months of 1999, respectively.
24
25
DISCONTINUED OPERATIONS
At December 31, 1998, the Company formally reported its accident and health
division as a discontinued operation for financial reporting purposes. The
accident and health division was placed into run-off with all treaties
(contracts) being terminated at the earliest possible date. This discontinued
segment reported a loss of $3.2 million and $8.2 million for the third quarter
and first nine months of 1999 up from a loss of $1.0 million and $1.3 million
for the comparable prior year periods, primarily a result of adverse development
on the treaties in run-off. The nature of the underlying risks is such that the
claims may take years to reach the reinsurers involved. Thus, the Company
expects to pay claims out of existing reserves over a number of years as the
level of business diminishes. The experience on this block of business will
continue to be monitored as the business runs off.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1999, the Company generated $225.1 million in
cash from operating activities and $1.4 billion in cash from investing
activities. These increases were offset by cash used by financing activities of
$1.6 billion, primarily a result of withdrawals on universal life and other
investment type policies and contracts related to the General American funding
agreements recapture. The sources of funds of the Company's operating
subsidiaries consist of premiums received from ceding insurers, investment
income, and proceeds from sales and redemption of investments. Premiums are
generally received in advance of related claim payments. Funds are primarily
applied to policy claims and benefits, operating expenses, income taxes, and
investment purchases.
As the Company continues its expansion efforts, management continually analyzes
capital adequacy issues. The Company has access to a $25.0 million demand line
of credit. At September 30, 1999, $15.0 million was drawn upon that line. This
liability is included in other liabilities on the balance sheet at September 30,
1999. During the second quarter of 1999, the Company borrowed $75.0 million in
the form of a term loan from General American to continue expansion of the
Company's business. The term loan is included in long-term debt on the balance
sheet at September 30, 1999. The ability of the Company and its subsidiaries to
make principal and interest payments, and of the Company to continue to pay
dividends to stockholders, is ultimately dependent on the earnings and surplus
of the Company's subsidiaries, the investment earnings on the undeployed funds
at the Company, and the Company's ability to raise additional capital. At
September 30, 1999, RGA Reinsurance and RGA Canada had statutory capital and
surplus of $321.1 million and $141.1 million, respectively. The transfer of
funds from the subsidiaries to the Company is subject to applicable insurance
laws and regulations. Any future increases in liquidity needs due to relatively
large policy loans or unanticipated material claim levels would be met first by
operating cash flows and then by selling fixed-income securities or short-term
investments.
On August 26, 1999, GenAmerica announced a definitive agreement whereby
Metropolitan Life Insurance Company ("MetLife") will acquire GenAmerica,
including GenAmerica's beneficial ownership of 53% of the outstanding shares of
the Company, for approximately $1.2 billion. The
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transaction is expected to be completed in the fourth quarter of 1999 or first
quarter of 2000, and is subject to regulatory and judicial approval.
The Company plans to complete a private placement of approximately $125 million
in common equity with MetLife during the fourth quarter of 1999. The parties
have agreed in principle that the transaction will be priced at the September 28
closing quoted share price of 26-1/8 for the RGA common stock. That equity
placement, together with a moderate amount of debt expected to be incurred in
the first half of 2000, would address the immediate capital needs associated
with the growth of the Company's primary businesses. The shares of common stock
proposed to be sold in the private placement to MetLife will not be registered
under the Securities Act of 1933 and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements. The private placement is subject to execution of definitive
agreements and subject to customary closing conditions.
The Company has several treaties that provide clients the right to recapture,
generally subject to 90 days written notice, if the Company's ratings fall below
certain thresholds. While the Company's ratings have fallen below these
thresholds, the Company has not been notified of any such recaptures. The extent
of any realized gains or losses associated with such recaptures would depend on
market conditions at the time of recapture.
INVESTMENTS
Invested assets decreased to $3.8 billion at September 30, 1999, compared to
$5.1 billion at December 31, 1998. The decrease resulted primarily from
recapture of the funding agreement business. The Company has historically
generated positive cash flows from operations.
At September 30, 1999, the Company's portfolio of fixed maturity securities
available for sale had net unrealized losses before tax of $119.3 million.
MARKET RISK
Market risk is the risk of loss that may occur when fluctuation in interest and
currency exchange rates and equity and commodity prices change the value of a
financial instrument. Both derivative and nonderivative financial instruments
have market risk so the Company's risk management extends beyond derivatives to
encompass all financial instruments held that are sensitive to market risk. RGA
is primarily exposed to interest rate risk and foreign currency risk.
Interest Rate Risk
The Company manages interest rate risk and credit risk to maximize the return on
the Company's capital and to preserve the value created by its business
operations. As such, certain management monitoring processes are designed to
minimize the impact of sudden and sustained changes in interest rates on fair
value, cash flows, and net interest income.
The Company's exposure to interest rate price risk and interest rate cash flow
risk is reviewed on a quarterly basis. Interest rate price risk exposure is
measured using interest rate sensitivity
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analysis to determine the change in fair value of the Company's financial
instruments in the event of a hypothetical change in interest rates. Interest
rate cash flow risk exposure is measured using interest rate sensitivity
analysis to determine the Company's variability in cash flows in the event of a
hypothetical change in interest rates. If estimated changes of fair value, net
interest income, and cash flows are not within the limits established by the
Board, the Board may direct management to adjust its asset and liability mix to
bring interest rate risk within Board-approved limits.
Interest rate sensitivity analysis is used to measure the Company's interest
rate price risk by computing estimated changes in fair value of fixed rate
assets in the event of a range of assumed changes in market interest rates. This
analysis assesses the risk of loss in market risk sensitive fixed rate
instruments in the event of a sudden and sustained 100 to 300 basis points
increase or decrease in the market interest rates. The following table presents
the Company's projected change in fair value of all financial instruments for
the various rate shock levels at September 30, 1999. All market risk sensitive
instruments presented in this table are available for sale. RGA has no trading
securities.
The calculation of fair value is based on the net present value of estimated
discounted cash flows expected over the life of the market risk sensitive
instruments, using market prepayment assumptions and market rates of interest
provided by independent broker quotations and other public sources as of
September 30, 1999, with adjustments made to reflect the shift in the Treasury
yield curve as appropriate.
Estimated Fair Value Percentage
-------------------- ----------
of Fixed Rate Hypothetical Hypothetical
------------- ------------ ------------
Percentage Change in Interest Rates Instruments Change Change
- ----------------------------------- ----------- ------ ------
(Dollars in thousands)
300 basis point rise $ 1,669,728 $(519,131) -23.72%
200 basis point rise $ 1,813,237 $(375,622) -17.16%
100 basis point rise $ 1,983,891 $(204,968) -9.36%
Base Scenario $ 2,188,859 $ - 0.00%
100 basis point decline $ 2,439,202 $ 250,343 11.44%
200 basis point decline $ 2,756,092 $ 567,233 25.91%
300 basis point decline $ 3,187,590 $ 998,731 45.63%
Interest rate sensitivity analysis is also used to measure the Company's
interest rate cash flow risk by computing estimated changes in the annual cash
flows expected attributable to floating rate assets, liabilities, and
off-balance sheet items in the event of a range of assumed changes in market
interest rates. This analysis assesses the risk of loss in cash flows of market
risk sensitive floating rate instruments in the event of a sudden and sustained
100 to 300 basis points increase or decrease in the market interest rates. The
following table presents the Company's estimated
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change in annual cash flows associated with floating-rate instruments for
various rate shock levels at September 30, 1999. All floating rate interest
sensitive instruments presented in this table are classified as available for
sale.
Estimated Annual
----------------
Cash Flows of Percentage
------------- ----------
Floating Rate Hypothetical Hypothetical
------------- ------------ ------------
Percentage Change in Interest Rates Instruments Change Change
- ----------------------------------- ----------- ------ ------
(Dollars in thousands)
300 basis point rise $ 49,795 $ 5,130 11.49%
200 basis point rise $ 48,005 $ 3,340 7.48%
100 basis point rise $ 46,556 $ 1,891 4.23%
Base Scenario $ 44,665 $ - 0.00%
100 basis point decline $ 43,247 $(1,418) -3.17%
200 basis point decline $ 41,711 $(2,954) -6.61%
300 basis point decline $ 40,392 $(4,273) -9.57%
Computations of prospective effects of hypothetical interest rate changes are
based upon numerous assumptions, including relative levels of market interest
rates and mortgage prepayments, and should not be relied upon as indicative of
future results. Further, the computations do not contemplate any actions
management could undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in the
computation of the estimated fair value of fixed rate instruments and the
estimated cash flows of floating rate instruments, which estimates constitute
forward-looking statements. Actual values may differ materially from the
projections presented due to a number of factors, including, without limitation,
market conditions that may vary from assumptions used in the calculation of the
fair value. In the event of a change in interest rates, prepayments could
deviate significantly from those assumed in the calculation of fair value.
Finally, the desire of many borrowers to repay their fixed-rate mortgage loans
may decrease in the event of interest rate increases.
FOREIGN CURRENCY RISK
The Company is subject to foreign currency translation, transaction, and net
income exposure. The Company generally does not hedge the foreign currency
translation exposure related to its investment in foreign subsidiaries as it
views these investments to be long-term. Translation differences resulting from
translating foreign subsidiary balances to U.S. dollars are reflected in equity.
The Company generally does not hedge the foreign currency exposure of its
subsidiaries transacting business in currencies other than their functional
currency (transaction exposure). Currently, the Company believes its foreign
currency transaction exposure is not material to the consolidated results of
operations. Net income exposure which may result from the
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strengthening of the U.S. dollar to foreign currencies will adversely affect
results of operations since the income earned in the foreign currencies is worth
less in U.S. dollars. When evaluating investments in foreign countries, the
Company considers the stability of the political and currency environment.
Devaluation of the currency after an investment decision has been made will
affect the value of the investment when translated to U.S. dollars for financial
reporting purposes.
YEAR 2000
Many computer systems worldwide currently record years in a two-digit format. If
not addressed, such computer systems will be unable to properly interpret dates
beyond the year 1999, which could lead to business disruptions in the U.S. and
internationally (the "Year 2000" issue). The potential costs and uncertainties
associated with the Year 2000 issue will depend on a number of factors,
including software, hardware and the nature of the industry in which a company
operates. Also, costs and uncertainties associated with the Year 2000 issue may
vary country by country. Additionally, companies must coordinate with other
entities with which they interact electronically. The Company does not have a
mainframe computer and its "legacy" systems are based on technology that
correctly handles the Year 2000 issue. A legacy system typically represents
older systems that are not currently being maintained or enhanced. As the
Company continues to grow, the steady investment in technology has allowed it to
keep its systems current and handle impending problems, such as Year 2000, in
the normal course of business.
Assessment
The Company established a plan to address the Year 2000 issue and the work was
completed in accordance with that plan. The Company identified all systems that
are critical to the Company's reinsurance operations and has completed
substantial testing of those mission critical systems. The Company foresees
potential Year 2000 exposure at our foreign subsidiaries, due primarily to
external Year 2000 infrastructure issues in these geographic areas. The
Company's contingency plans should help to mitigate some of the effects of these
issues. Inventories of substantially all software, hardware, and trading
partners are compiled in a Year 2000 database. Each of these items has been
researched for Year 2000 compliance, and all required components have been
verified as Year 2000 compliant. In addition to internal systems, the Company
relies on external systems and has included in the assessment and inventories
those systems of significant external parties such as vendors, ceding companies
and retrocessionaires. There is no known method to completely determine
compliance of external systems, but an effort is being made to assure compliance
of these external systems to the extent practicable. The Company has been
working with external parties in conjunction with the Company's testing efforts;
however the Company could be adversely affected if external parties fail to
comply with the Year 2000 issue. This is a situation over which the Company has
no direct control.
With respect to non-information technology systems, the Company moved its St.
Louis office in August 1999 and believes that the new leased premises and all
equipment with embedded technology is upgraded and Year 2000 compliant. The
Company believes the only material non-information technology system outside of
St. Louis is in the premise occupied by the Company's
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Canadian segment. The Company has received confirmation from that building's
management that the building will be functional, accessible, and not materially
affected by the Year 2000 issue.
Testing
The Company completed testing of all critical systems. These tests revealed
minor issues that have been addressed. As of December 31, 1998, 100% of the core
systems were tested successfully. The Company has since concluded gathering data
from external parties. The testing and assessment of the Company's Year 2000
readiness has been completed in accordance with the Company's plan.
Contingency Plan
A contingency plan has been developed to reduce the possibility that any
disruption caused by the Year 2000 issue would materially affect the Company's
business or results of operations; however, no assurance can be given that the
contingency plan would be successful. The contingency plan was formulated in
conjunction with the compliance testing process. The plan includes an assessment
of the Company's ability to manually enter data for clients that cannot provide
electronic data, to estimate data for clients that have Year 2000 issues and
cannot provide data to the Company, and to implement a recovery plan in the case
of certain Year 2000 failures.
Costs
The Company expects to incur most of the costs of the Year 2000 effort primarily
from testing of the administrative systems in St. Louis and Montreal. These
systems support the administration of the majority of the Company's business.
Therefore, the combined costs of these two locations would effectively represent
substantially all of the Company's Year 2000 costs. The Company is continuing to
work with its subsidiaries to ensure their compliance with the Year 2000 effort.
Costs for St. Louis and Montreal were approximately $300,000 through December
31, 1998. The Company incurred costs of approximately $58,000 during 1999 and
anticipates that the remaining costs for the project will be approximately
$244,000. The Company has estimated future costs based on its current knowledge
and testing.
Although the Company met its goal to be substantially Year 2000 compliant by
June 30, 1999, key external parties or service providers may fail to make their
systems Year 2000 compliant. There are no assurances that there will not be
failures on the part of external parties. The failure to correct a material Year
2000 problem could result in an interruption in, or failure of, certain normal
business activities and operations of the Company. Such failures could adversely
affect the Company's results of operations, liquidity and financial condition,
particularly as a result of the uncertainty of the Year 2000 readiness of
third-party suppliers and clients. The Company believes that, with the
completion of the compliance effort, the possibility of significant
interruptions of normal operations has been significantly reduced. The Company
also believes that a reasonably likely worst case scenario would occur in the
event that clients are unable to provide data to process the reinsurance
activity. In this event, the Company would estimate existing business based on
the historical information in the Company's database. New business would be
calculated based on the initial information used by the Company during its
evaluation of the client's business. In these scenarios, the Company believes it
can still administer reinsurance business based on estimates until reliable
client data can be received.
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NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," effective upon issuance. SFAS No. 137
amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," deferring the effective date to fiscal quarters beginning after
June 15, 2000. SFAS No. 133 requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. It also requires
that gains or losses resulting from changes in the values of those derivatives
be reported depending on the use of the derivative and whether it qualifies for
hedge accounting. The Company has not yet determined the effect, if any, of the
implementation of SFAS No. 133 on the results of operation, financial position,
or liquidity. The Company plans to adopt the provisions of SFAS No. 133 in 2000.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements included in this Form 10-Q regarding future financial performance
and results and the other statements that are not historical facts are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These "forward-looking" statements include,
without limitation, certain statements in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Such statements also
may include, but are not limited to, statements regarding the Company's ability
to meet reinsurance and debt obligations, projections of earnings, revenues,
income or loss, estimated fair values of fixed rate instruments, estimated cash
flows of floating rate instruments, capital expenditures, plans for future
operations and financing needs or plans, growth prospects and targets, industry
trends, trends in or expectations regarding operations and capital commitments,
the sufficiency of claims reserves, and Year 2000 compliance as well as
assumptions relating to the foregoing. The words "expect," "project,"
"estimate," "anticipate," "should," "believe" and similar expressions also are
intended to identify forward-looking statements. Forward-looking statements are
inherently subject to risks and uncertainties, some of which cannot be predicted
or quantified. Future events and actual results, performance and achievements
could differ materially from those set forth in, contemplated by or underlying
the forward-looking statements.
Numerous factors could cause actual results and events to differ materially from
those expressed or implied by forward-looking statements including, without
limitation, (1) the contemplated acquisition of GenAmerica by MetLife, (2)
market conditions and the timing of sales of investment securities, (3)
regulatory action taken by the Missouri Department of Insurance with respect to
General American or the Company or its subsidiaries, (4) changes in the
Company's credit ratings and the effect of recent ratings downgrades on the
Company's future results of operations and financial condition, (5) material
changes in mortality and claims experience, (6) competitive factors and
competitors' responses to the Company's initiatives, (7) general economic
conditions affecting the demand for insurance and reinsurance in the Company's
current and planned markets (8) successful execution of the Company's entry into
new markets, (9) successful development and introduction of new products, (10)
the stability of governments and economies in foreign markets, (11) fluctuations
in U.S. and foreign currency exchange rates, interest rates and securities and
real estate markets, (12) the success of the Company's clients,
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including General American Life Insurance Company ("General American") and its
affiliates, and (13) changes in laws, regulations, and accounting standards
applicable to the Company and its subsidiaries. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. ALL SUBSEQUENT WRITTEN AND
ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON
ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THIS CAUTIONARY
STATEMENT. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO RELEASE PUBLICLY ANY
REVISIONS TO SUCH FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS AND CIRCUMSTANCES
AFTER THE DATE HEREOF TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk" and " - Foreign Currency Risk" which are
incorporated by reference herein.
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PART II - OTHER INFORMATION
ITEM 1.
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 a party
to any such pending litigation or arbitration that would have a material adverse
effect on its future operations.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Shareholders of the Company was held on September 14,
1999
(b) At the Special Meeting, the following proposal was voted upon by the
shareholders as indicated below:
1. To approve the amendment to the Restate Articles of Incorporation of
RGA in order to reclassify the existing and separate class of Non-Voting Common
Stock into Voting Common Stock by converting each outstanding share of
Non-Voting Common Stock into 0.97 of a share of Voting Common Stock.
Voted
Voted For Against Abstained No Vote
--------- ------- --------- -------
Voting 34,021,598 995,629 5,177 0
Non-Voting 6,002,872 125,570 4,450 0
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ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) See index to exhibits.
(b) The following reports on Form 8-K were filed with the Securities and
Exchange Commission during the three months ended September 30, 1999:
1. The Company filed a Current Report on Form 8-K on August 25, 1999,
dated as of August 10, 1999, to report under Item 3 that General American had
become subject to an order of administrative supervision by the Missouri
Department of Insurance.
2. The Company filed a Current Report on Form 8-K on September 10,
1999, dated as of August 26, 1999, to report under Item 1 a potential change
in control resulting from the proposed acquisition of GenAmerica by MetLife.
3. The Company filed a Current Report on Form 8-K on September 30,
1999, dated as of September 17, 1999, to report under Item 3 that the Circuit
Court of Cole County, Missouri, entered an order of rehabilitation placing
General American Mutual Holding Company into rehabilitation and approving
notice of a hearing to approve a Plan of Reorganization.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Reinsurance Group of America, Incorporated
By: /s/ A. Greig Woodring November 12, 1999
-------------------------------------------
A. Greig Woodring
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Jack B. Lay November 12, 1999
-------------------------------------------
Jack B. Lay
Executive Vice President & Chief Financial
Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1 Restated Articles of Incorporation of Reinsurance Group of America,
Incorporated, as amended.
3.2 Bylaws of Reinsurance Group of America, Incorporated, as amended.
3.3 Form of Certificate of Designations for Series A Junior Participating
Preferred Stock, incorporated by reference to Exhibit 3.3 to Amendment
No. 1 to Form 10-Q for the quarter ended March 31, 1997 (No. 1-11848)
filed May 21, 1997.
4.1 Third Amendment to Rights Agreement dated as of August 12, 1999,
between Reinsurance Group of America, Incorporated and ChaseMellon
Shareholder Services, L.L.C. (as successor to Boatmen's Trust
Company), as Rights Agent, incorporated by reference to Exhibit 4.4 to
Form 8-K dated August 10, 1999 (No. 1-11848), filed August 25, 1999.
4.2 Fourth Amendment to Rights Agreement dated as of August 23, 1999,
between Reinsurance Group of America, Incorporated and ChaseMellon
Shareholder Services, L.L.C. (as successor to Boatmen's Trust
Company), as Rights Agent, incorporated by reference to Exhibit
4.1 to Form 8-K dated August 26, 1999 (No. 1-11848), filed
September 10, 1999.
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