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 JUNE 30, 2001
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
----- -----
COMMON STOCK OUTSTANDING ($.01 PAR VALUE) AS OF JULY 31, 2001: 49,410,334
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)
June 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Income (Unaudited)
Three and six months ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2001 and 2000 5
Notes to Unaudited Condensed Consolidated Financial
Statements (Unaudited) 6
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
3 Qualitative and Quantitative Disclosures About Market Risk 20
PART II - OTHER INFORMATION
1 Legal Proceedings 20
4 Submission of Matters to a Vote of Security Holders 21
6 Exhibits and Reports on Form 8-K 21
Signatures 22
Index to Exhibits 23
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2001 2000
----------- ------------
(Dollars in thousands)
ASSETS
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $2,760,409 and
$2,753,521 at June 30, 2001 and December 31, 2000, respectively) $ 2,667,673 $ 2,692,840
Mortgage loans on real estate 140,115 128,111
Policy loans 716,033 706,877
Funds withheld at interest 952,408 938,362
Short-term investments 49,593 68,735
Other invested assets 53,283 25,233
----------- -----------
Total investments 4,579,105 4,560,158
Cash and cash equivalents 155,792 70,797
Accrued investment income 55,468 37,555
Premiums receivable 149,739 226,365
Reinsurance ceded receivables 309,404 296,368
Deferred policy acquisition costs 723,707 621,475
Other reinsurance balances 191,427 202,158
Other assets 47,517 46,984
----------- -----------
Total assets $ 6,212,159 $ 6,061,860
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits $ 2,012,811 $ 1,933,508
Interest sensitive contract liabilities 2,100,409 2,128,743
Other policy claims and benefits 602,989 555,423
Other reinsurance balances 66,535 69,343
Deferred income taxes 176,238 170,905
Other liabilities 47,040 68,758
Long-term debt 318,003 272,257
----------- -----------
Total liabilities 5,324,025 5,198,937
Commitments and contingent liabilities
Stockholders' Equity:
Preferred stock (par value $.01 per share; 10,000,000 shares authorized; no
shares issued or outstanding) -- --
Common stock (par value $.01 per share; 75,000,000 shares authorized,
51,053,273 shares issued at June 30, 2001 and December 31, 2000,
respectively) 511 511
Additional paid-in capital 612,455 611,349
Retained earnings 394,393 348,158
Accumulated other comprehensive income:
Accumulated currency translation adjustment, net of income taxes (20,833) (15,867)
Unrealized depreciation of securities, net of income taxes (60,355) (42,004)
----------- -----------
Total stockholders' equity before treasury stock 926,171 902,147
Less treasury shares held of 1,647,939 and 1,759,715 at cost at
June 30, 2001 and December 31, 2000, respectively (38,037) (39,224)
----------- -----------
Total stockholders' equity 888,134 862,923
----------- -----------
Total liabilities and stockholders' equity $ 6,212,159 $ 6,061,860
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------- -------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(Dollars in thousands, except per share data)
REVENUES:
Net premiums $ 387,336 $ 345,400 $ 791,921 $ 674,943
Investment income, net of related expenses 76,276 82,292 160,365 156,302
Realized investment losses, net (7,526) (10,892) (9,032) (15,524)
Other revenues 9,441 2,475 15,928 5,688
--------- --------- --------- ---------
Total revenues 465,527 419,275 959,182 821,409
BENEFITS AND EXPENSES:
Claims and other policy benefits 302,204 267,666 639,770 533,405
Interest credited 19,547 27,176 46,951 48,475
Policy acquisition costs and other insurance expenses 67,442 62,179 133,275 113,662
Other operating expenses 21,819 18,985 44,078 39,512
Interest expense 4,377 3,775 9,288 7,309
--------- --------- --------- ---------
Total benefits and expenses 415,389 379,781 873,362 742,363
--------- --------- --------- ---------
Income before income taxes 50,138 39,494 85,820 79,046
Provision for income taxes 19,624 18,084 33,664 33,732
--------- --------- --------- ---------
Income from continuing operations 30,514 21,410 52,156 45,314
Discontinued operations:
Loss on discontinued accident and health operations,
net of taxes -- (2,506) -- (5,988)
--------- --------- --------- ---------
Net income $ 30,514 $ 18,904 $ 52,156 $ 39,326
========= ========= ========= =========
Earnings per share from continuing operations:
Basic earnings per share $ 0.62 $ 0.43 $ 1.06 $ 0.91
========= ========= ========= =========
Diluted earnings per share $ 0.61 $ 0.43 $ 1.04 $ 0.90
========= ========= ========= =========
Earnings per share from net income:
Basic earnings per share $ 0.62 $ 0.38 $ 1.06 $ 0.79
========= ========= ========= =========
Diluted earnings per share $ 0.61 $ 0.38 $ 1.04 $ 0.79
========= ========= ========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
-------------------------------
2001 2000
----------- -----------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income $ 52,156 $ 39,326
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in:
Accrued investment income (17,913) (27,651)
Premiums receivable 76,626 13,082
Deferred policy acquisition costs (104,892) (88,046)
Reinsurance ceded balances (13,036) (9,564)
Future policy benefits, other policy claims and benefits, and
other reinsurance balances 134,792 112,449
Deferred income taxes 23,232 17,329
Other assets and other liabilities (25,187) 32,146
Amortization of net investment discounts, goodwill and other (19,621) (15,901)
Realized investment losses, net 9,032 6,889
Realized loss on sale of business -- 8,635
Other, net 1,386 1,088
----------- -----------
Net cash provided by operating activities 116,575 89,782
INVESTING ACTIVITIES:
Proceeds from sale of business -- 26,509
Sales of investments:
Fixed maturity securities - Available for sale 753,027 410,762
Mortgage loans -- 1,700
Maturities of fixed maturity securities - Available for sale -- 2,963
Purchases of fixed maturity securities - Available for sale (754,318) (1,074,283)
Cash invested in:
Mortgage loans (13,975) (19,244)
Policy loans (9,156) (7,991)
Funds withheld at interest (36,564) (107,669)
Principal payments on mortgage loans 1,974 4,272
Change in short-term and other invested assets (9,741) 92,526
----------- -----------
Net cash used by investing activities (68,753) (670,455)
FINANCING ACTIVITIES:
Dividends to stockholders (5,921) (5,986)
Borrowings under credit agreements 45,746 79,409
Reissuance (purchase) of treasury stock 1,187 (17,397)
Excess (withdrawals) deposits on universal life and other
investment type policies and contracts (4,112) 567,990
----------- -----------
Net cash provided by financing activities 36,900 624,016
Effect of exchange rate changes 273 128
----------- -----------
Change in cash and cash equivalents 84,995 43,471
Cash and cash equivalents, beginning of period 70,797 24,316
----------- -----------
Cash and cash equivalents, end of period $ 155,792 $ 67,787
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Reinsurance Group of America, Incorporated ("RGA") and Subsidiaries
(collectively, the "Company") have been prepared in conformity with accounting
principles generally accepted in the United States of America and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods ended June
30, 2001 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000 ("Annual Report").
The accompanying unaudited condensed consolidated financial statements include
the accounts of Reinsurance Group of America, Incorporated and its Subsidiaries.
All material intercompany accounts and transactions have been eliminated. The
Company has reclassified the presentation of certain prior period information to
conform to the 2001 presentation.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share from continuing operations (dollars in thousands, except per share
information):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2001 2000 2001 2000
------- ------- ------- -------
Earnings:
Income from continuing operations
(numerator for basic and diluted
calculations) $30,514 $21,410 $52,156 $45,314
Shares:
Weighted average outstanding shares
(denominator for basic calculation) 49,402 49,656 49,371 49,795
Equivalent shares from outstanding stock
options 559 387 552 290
------- ------- ------- -------
Denominator for diluted calculation 49,961 50,043 49,923 50,085
Earnings per share:
Basic $ 0.62 $ 0.43 $ 1.06 $ 0.91
Diluted $ 0.61 $ 0.43 $ 1.04 $ 0.90
------- ------- ------- -------
The calculation of equivalent shares from outstanding stock options does not
include the impact of options having a strike price that exceeds the average
stock price for the earnings period, as the result would be antidilutive. For
the three and six month periods ended June 30, 2001, approximately 0.1 million
in outstanding stock options were not included in the calculation of common
equivalent shares. For the three and six months ended June 30, 2000,
approximately 0.4 million and 0.6 million, respectively, in outstanding stock
options were not included in the calculation of common equivalent shares. These
options were outstanding at the end of their respective periods.
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3. COMPREHENSIVE INCOME (LOSS)
The following schedule reflects the change in accumulated other comprehensive
income (loss) for the three and six-month periods ended June 30, 2001 and 2000
(dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- --------------------------------
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
Net income $ 30,514 $ 18,904 $ 52,156 $ 39,326
Accumulated other comprehensive
income (expense):
Unrealized (losses) gains on securities (29,046) (24,427) (18,351) 33,349
Foreign currency items 8,967 (1,891) (4,966) (2,752)
-------- -------- -------- --------
Comprehensive income (loss) $ 10,435 $ (7,414) $ 28,839 $ 69,923
-------- -------- -------- --------
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 Annual Report. The
Asia Pacific, Latin America and Other Markets operating segments have been
condensed into one reportable segment, Other International, as allowed by
applicable accounting pronouncements. The Company measures segment performance
based on profit or loss from operations before income taxes. 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. Information related to revenues and income
(loss) before income taxes of the Company's continuing operations are summarized
below (dollars in thousands).
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- --------------------------------
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
REVENUES
U.S $ 335,202 $ 306,822 $ 702,330 $ 603,776
Canada 62,539 61,303 126,612 116,937
Other International 67,809 49,745 129,083 98,979
Corporate (23) 1,405 1,157 1,717
--------- --------- --------- ---------
Total from continuing operations $ 465,527 $ 419,275 $ 959,182 $ 821,409
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
U.S $ 43,857 $ 44,900 $ 74,129 $ 78,877
Canada 14,994 9,300 32,143 21,530
Other International (1,325) (9,266) (5,966) (9,631)
Corporate (7,388) (5,440) (14,486) (11,730)
--------- --------- --------- ---------
Total from continuing operations $ 50,138 $ 39,494 $ 85,820 $ 79,046
--------- --------- --------- ---------
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There have been no material changes in reportable segment assets from the
amounts disclosed in Note 17 of the Annual Report.
5. DIVIDENDS
The Board of Directors declared a dividend of six cents per share of common
stock on April 25, 2001. This dividend was paid on May 29, 2001 to shareholders
of record as of May 8, 2001.
6. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to several arbitrations underway primarily involving its
group medical reinsurance coverages. The Company expects those arbitrations to
be completed during 2001 and 2002. Reserves are established on those treaties
based upon estimates of the expected findings of the related arbitration panels.
There are no arbitrations underway as of June 30, 2001, relative to the
Company's portfolio of personal accident business, although such arbitrations
could commence at some point in the future. It is management's opinion that
future developments, if any, will not materially adversely affect the Company's
financial position.
7. NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles will
be evaluated against these new criteria and may result in certain intangibles
being subsumed into goodwill, or alternatively, amounts initially recorded as
goodwill may be separately identified and recognized apart from goodwill. SFAS
No. 142 requires the use of a nonamortization approach to account for purchased
goodwill and certain intangibles. Under a nonamortization approach, goodwill and
certain intangibles will not be amortized into results of operations, but
instead would be reviewed for impairment and written down and charged to results
of operations only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. The provisions of each
statement, which apply to goodwill and intangible assets acquired prior to June
30, 2001, will be adopted by the Company on January 1, 2002. The Company does
not currently expect the adoption of these accounting standards to have a
material impact on the Company's results of operations; however, impairment
reviews subsequent to the initial adoption date may result in future periodic
write-downs.
In June 2000, FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -- an Amendment of FASB Statement No.
133". This Statement addresses a limited number of issues causing implementation
difficulties for numerous entities that apply SFAS 133. 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
adopted SFAS No. 138 as of January 1, 2001, resulting in an after-tax loss
included in the first quarter of 2001 of $0.5 million, substantially all of
which related to embedded derivatives on a specific market value annuity
product. The Company has a variety of reasons to use derivative instruments,
such as to attempt to protect the Company against possible changes in the market
value of its investment portfolio as a result of interest rate changes and to
manage the portfolio's effective yield, maturity, and duration. The Company does
not invest in derivatives for speculative purposes. The Company may use both
exchange-traded and customized over-the-counter derivative financial
instruments. The Company's use of derivatives historically has not been
significant to its financial position.
In March 1998, the National Association of Insurance Commissioners ("NAIC")
adopted the Codification of Statutory Accounting Principles ("Codification"),
which was effective on January 1, 2001. The purpose of Codification is to
establish a uniform set of accounting rules and regulations (Statements of
Statutory Accounting Principles, "SSAP") for use by insurance companies in
financial report preparation in connection with financial reporting to
regulatory authorities. As of June 30, 2001, the State of Missouri has not
amended its laws and rules to closely mirror SSAP, but the Missouri Department
of Insurance has instructed its domestic insurers to conform to
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the new codified SSAP in anticipation of changes to applicable Missouri laws and
rules. The Company adopted Codification pursuant to the new codified SSAP on
January 1, 2001, resulting in an increase in the statutory surplus of RGA
Reinsurance Company and its parent, Reinsurance Company of Missouri, of
approximately $2.0 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company has five main operational segments segregated primarily by
geographic region: U.S., Canada, Latin America, Asia Pacific, and Other Markets,
which include Europe and South Africa. The Asia Pacific, Latin America, and
Other Markets operational segments are presented herein as one reportable
segment, Other International, as allowed by applicable accounting
pronouncements. 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
primarily include reinsurance of corporate-owned life insurance and annuities.
The Canada operations provide insurers with traditional reinsurance as well as
assistance with capital management activity. Other international operations
primarily provide reinsurance in Asia Pacific, Latin America, and other markets
being developed by the Company. The operational 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 on profit or loss from operations before income taxes.
Consolidated income from continuing operations before income taxes for the
second quarter and first six months of 2001 increased $10.6 million and $6.8
million, respectively, as compared to the prior-year periods. After tax diluted
earnings per share from continuing operations were $0.61 and $1.04 for the
second quarter and first six months of 2001, respectively, compared to $0.43 and
$0.90 for the prior year periods.
Further discussion and analysis of the results for 2001 compared to 2000 are
presented by segment.
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U.S. OPERATIONS (dollars in thousands)
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
TRADITIONAL NON-TRADITIONAL
---------------------------
ASSET- FINANCIAL TOTAL
INTENSIVE REINSURANCE U.S.
----------- --------- ----------- ---------
REVENUES:
Net premiums $ 279,377 $ 1,090 $ -- $ 280,467
Investment income, net of related expenses 37,382 13,549 195 51,126
Realized investment gains (losses), net (5,779) 612 -- (5,167)
Other revenue 386 2,088 6,302 8,776
--------- --------- --------- ---------
Total revenues 311,366 17,339 6,497 335,202
BENEFITS AND EXPENSES:
Claims and other policy benefits 214,111 787 -- 214,898
Interest credited 12,642 6,357 -- 18,999
Policy acquisition costs and other insurance
expenses 40,655 4,920 2,411 47,986
Other operating expenses 7,212 154 2,096 9,462
--------- --------- --------- ---------
Total benefits and expenses 274,620 12,218 4,507 291,345
Income before income taxes $ 36,746 $ 5,121 $ 1,990 $ 43,857
========= ========= ========= =========
FOR THE THREE MONTH PERIOD ENDING JUNE 30, 2000
TRADITIONAL NON-TRADITIONAL
---------------------------
ASSET- FINANCIAL TOTAL
INTENSIVE REINSURANCE U.S.
----------- --------- ----------- ---------
REVENUES:
Net premiums $ 249,786 $ 426 $ -- $ 250,212
Investment income, net of related expenses 37,330 19,265 -- 56,595
Realized investment gains (losses), net (1,595) (1) -- (1,596)
Other revenue (370) 443 1,538 1,611
--------- --------- --------- ---------
Total revenues 285,151 20,133 1,538 306,822
BENEFITS AND EXPENSES:
Claims and other policy benefits 183,798 634 -- 184,432
Interest credited 11,479 13,683 -- 25,162
Policy acquisition costs and other insurance
expenses 41,634 3,482 837 45,953
Other operating expenses 6,219 138 18 6,375
--------- --------- --------- ---------
Total benefits and expenses 243,130 17,937 855 261,922
Income before income taxes $ 42,021 $ 2,196 $ 683 $ 44,900
========= ========= ========= =========
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FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2001
TRADITIONAL NON-TRADITIONAL
---------------------------
ASSET- FINANCIAL TOTAL
INTENSIVE REINSURANCE U.S.
----------- --------- ----------- ---------
REVENUES:
Net premiums $ 584,866 $ 1,388 $ -- $ 586,254
Investment income, net of related expenses 74,083 36,708 394 111,185
Realized investment gains (losses), net (10,347) 846 -- (9,501)
Other revenue 504 1,370 12,518 14,392
--------- --------- --------- ---------
Total revenues 649,106 40,312 12,912 702,330
BENEFITS AND EXPENSES:
Claims and other policy benefits 463,541 3,868 -- 467,409
Interest credited 25,258 20,745 -- 46,003
Policy acquisition costs and other insurance
expenses 83,151 8,022 5,265 96,438
Other operating expenses 13,904 283 4,164 18,351
--------- --------- --------- ---------
Total benefits and expenses 585,854 32,918 9,429 628,201
Income before income taxes $ 63,252 $ 7,394 $ 3,483 $ 74,129
========= ========= ========= =========
FOR THE SIX MONTH PERIOD ENDING JUNE 30, 2000
TRADITIONAL NON-TRADITIONAL
---------------------------
ASSET- FINANCIAL TOTAL
INTENSIVE REINSURANCE U.S.
----------- --------- ----------- ---------
REVENUES:
Net premiums $ 496,528 $ 1,044 $ -- $ 497,572
Investment income, net of related expenses 70,441 36,700 -- 107,141
Realized investment gains (losses), net (4,414) (85) -- (4,499)
Other revenue (77) 399 3,240 3,562
--------- --------- --------- ---------
Total revenues 562,478 38,058 3,240 603,776
BENEFITS AND EXPENSES:
Claims and other policy benefits 383,357 742 -- 384,099
Interest credited 22,905 23,064 -- 45,969
Policy acquisition costs and other insurance
expenses 70,315 9,799 1,961 82,075
Other operating expenses 12,442 277 37 12,756
--------- --------- --------- ---------
Total benefits and expenses 489,019 33,882 1,998 524,899
Income before income taxes $ 73,459 $ 4,176 $ 1,242 $ 78,877
========= ========= ========= =========
During the second quarter and first six months of 2001, income before income
taxes for U.S. operations totaled $43.9 million and $74.1 million, respectively,
a 2.3% and 6.0% decrease from the comparable prior periods. The decrease in
income for the first six months of 2001 can primarily be attributed to higher
than expected death claims, particularly on facultative business during the
first quarter of 2001. The level of death claims may fluctuate from period to
period, but is expected to remain fairly constant over the long term. We do not
believe the first-quarter claim results indicate a systemic pricing or
profitability problem on our underlying business. The decrease in income before
income taxes during the second quarter of 2001 compared to the prior-year period
is due to lower than expected death claims in the traditional sub-segment in the
prior year. Death claims during the second quarter of 2001 were essentially in
line with management's expectations. Net premium growth continued for the U.S.
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operations segment with a 12.1% and 17.8% increase for the second quarter and
first six months of 2001 compared to the same period last year. The increase is
attributed to the continued growth of the Company's traditional business.
Traditional Reinsurance
The U.S. traditional reinsurance sub-segment is the oldest and largest
sub-segment of the Company. This sub-segment provides life reinsurance to
domestic clients for a variety of life products through yearly renewable term
agreements, coinsurance, and modified coinsurance arrangements. These
reinsurance arrangements may be either facultative or automatic agreements.
During the first six months of 2001, production totaled $39.2 billion compared
to $53.8 billion for the same period in 2000. 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 future production is uncertain.
Income before income taxes for U.S. traditional reinsurance decreased 12.6% and
13.9% for the second quarter and six months ended 2001, respectively. The
decrease in income was primarily due to higher than expected death claims during
the first quarter and realized losses of $5.8 million and $10.3 million on
securities transactions during the second quarter and first six months of 2001,
respectively. Death claims during the second quarter of 2001 were in line with
management expectations, compared to death claims that were lower than expected
during the second quarter of 2000.
Net premiums for U.S. traditional reinsurance increased 11.8% and 17.8% in the
second quarter and first six months of 2001, respectively. New premiums from
facultative and automatic treaties and renewal premiums on existing blocks of
business all contributed to continued growth.
Net investment income remained relatively constant for the second quarter and
increased 5.2% for the first six months of 2001. Investment income remained flat
for the second quarter due to a decrease in investment yield offset by an
increase in the invested asset base in the traditional portfolio. The increase
was due to the growth in the invested asset base, primarily due to increased
operating cash flows on traditional reinsurance, which was partially offset by
the lower yields as a result of the general decline in interest rates.
The amount of claims and other policy benefits increased 16.5% and 20.9% in the
second quarter and first six months of 2001, respectively. Claims and other
policy benefits, as a percentage of net premiums, were 76.6% and 79.3% in the
second quarter and first six months of 2001, respectively, compared to 73.6%
and 77.2% in prior-year periods. Prior-year percentages reflected a lower level
of claims than expected. Mortality results (death claims) during the first
quarter of 2001 exceeded management expectations, primarily related to several
treaties that have been on the books for years. Mortality may fluctuate
somewhat from period to period, but is expected to remain fairly constant over
the long term.
Interest credited relates to amounts credited on the Company's cash value
products in this sub-segment, which have a significant mortality component. The
increase in the second quarter and first six months of 2001 as compared to 2000
was primarily due to increased interest crediting rates and deposits. This
amount fluctuates with the changes in deposit levels, cash surrender values and
interest crediting rates.
As a percentage of net premiums, policy acquisition costs and other insurance
expenses were 14.6% and 14.2% for the second quarter and first six months of
2001, respectively, compared to 16.7% and 14.2% in the prior-year periods. The
decrease in the second quarter of 2001 was primarily attributable to the change
in the mix of business that has been processed in the current period.
Other operating expenses for the second quarter and first six months of 2001
remained relatively constant as a percentage of net premiums.
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Asset-Intensive Reinsurance
The U.S. asset-intensive reinsurance sub-segment includes the reinsurance of
annuities and corporate-owned life insurance.
Income before income taxes increased in the second quarter and first six months
of 2001 to $5.1 million and $7.4 million, respectively, a 133.2% and 77.1%
increase compared to the same period last year. Net premiums reported in this
sub-segment relate to a yearly renewable term treaty that reinsures the
mortality risk of a corporate-owned life insurance product. The decrease in
investment income and interest credited for the three months ended June 30, 2001
compared to the prior year period is due to a distinct block of annuities. A
decline in the performance of the assets supporting this block of annuities
resulted in a decrease in the investment income, which in turn resulted in a
decrease in the interest credited under the reinsurance treaty. 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 sub-segment includes net fees earned on financial
reinsurance agreements and the Company's investment in RGA Financial Group,
L.L.C. ("RGA Financial Group"). Effective July 1, 2000, the Company increased
its ownership of RGA Financial Group from 40% to 80%. The Company acquired the
remaining 20% interest during the fourth quarter of 2000. The majority of the
financial reinsurance transactions assumed by the Company are retroceded to
other insurance companies. 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 increased in the second quarter and in the first six
months of 2001, to $2.0 million and $3.5 million, respectively, as compared to
$0.7 million and $1.2 million for the prior-year periods. These results can be
attributed to the increased ownership in RGA Financial Group coupled with the
increased fees for the comparable periods.
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CANADA OPERATIONS (dollars in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- --------------------------------
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
REVENUES:
Net premiums $ 44,148 $ 46,146 $ 86,714 $ 87,173
Investment income, net of related expenses 15,651 15,301 31,297 30,284
Realized investment gains (losses), net 2,902 (201) 8,516 (647)
Other revenue (162) 57 85 127
--------- --------- --------- ---------
Total revenues 62,539 61,303 126,612 116,937
BENEFITS AND EXPENSES:
Claims and other policy benefits 41,888 42,702 83,095 79,965
Interest credited 72 149 179 494
Policy acquisition costs and other
insurance expenses 3,368 7,134 6,854 10,780
Other operating expenses 2,217 2,018 4,341 4,168
--------- --------- --------- ---------
Total benefits and expenses 47,545 52,003 94,469 95,407
Income before income taxes $ 14,994 $ 9,300 $ 32,143 $ 21,530
========= ========= ========= =========
Income before income taxes increased 61.2% and 49.3% in the second quarter and
first six months of 2001, respectively. Excluding realized investment gains
(losses), income before income taxes increased 27.3% and 6.5% in the second
quarter and first six months of 2001, respectively. The increase is primarily
the result of lower than expected death claims, offset by the effects of changes
in the foreign exchange rates during 2001 compared to 2000. Weakness in the
Canadian dollar during 2001 adversely affected the reported income before income
taxes by $0.6 million or 6.5% and $1.5 million or 6.9% in the second quarter and
the first six months, respectively.
Net premiums decreased 4.3% and 0.5% in the second quarter and first six months
of 2001, respectively. In local currency, premiums remained flat in the second
quarter but increased 4.1% for the first six months of 2001. The level second
quarter premium growth is the result of two in-force blocks recorded in June
2000. Premium levels are significantly influenced by large transactions and
reporting practices of ceding companies and therefore can fluctuate from period
to period. In addition, the decline in the strength of the Canadian dollar had
an adverse effect on the amount of net premium reported of $1.9 million or 4.0%
and $4.1 million or 4.7% in the second quarter and the first six months,
respectively.
Net investment income increased 2.3% and 3.3% in the second quarter and first
six months of 2001, respectively, due to an increase in the invested asset base,
offset by the effects of the change in the foreign exchange rate of $0.6 million
or 4.2% and $1.4 million or 4.5% in the respective periods. The invested asset
base growth is 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.
Claims and other policy benefits as a percentage of net premiums were 94.9% and
95.8% in the second quarter and first six months of 2001, respectively, compared
to 92.5% and 91.7% in the prior-year periods. The higher percentages are within
management's expectations in light of the premium level. For the first six
months of 2001, mortality was consistent with expectations. Mortality may
fluctuate somewhat from period to period, but is expected to remain fairly
constant over the long term.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums totaled 7.6% and 7.9% in the second quarter and first six months of
2001, respectively, compared to 15.5% and 12.4% in the prior-year periods.
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The decrease in the second quarter and first six months of 2001 is primarily due
to a different mix of business processed as the general mix of business shifted
towards yearly renewable term from coinsurance agreements. These yearly
renewable term agreements tend to have lower commission costs compared to
coinsurance agreements.
OTHER INTERNATIONAL OPERATIONS (dollars in thousands)
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2001
TOTAL
LATIN OTHER OTHER
ASIA PACIFIC AMERICA MARKETS INTERNATIONAL
------------ -------- ------- -------------
REVENUES:
Net premiums $ 25,934 $ 18,397 $ 18,390 $ 62,721
Investment income, net of related expenses 1,246 4,857 596 6,699
Realized investment gains (losses), net 58 (2,480) 6 (2,416)
Other revenue 617 88 100 805
-------- -------- -------- --------
Total revenues 27,855 20,862 19,092 67,809
BENEFITS AND EXPENSES:
Claims and other policy benefits 17,261 17,785 10,372 45,418
Interest credited -- 476 -- 476
Policy acquisition costs and other insurance
expenses 6,565 3,832 5,691 16,088
Other operating expenses 2,310 2,095 2,408 6,813
Interest expense 194 -- 145 339
-------- -------- -------- --------
Total benefits and expenses 26,330 24,188 18,616 69,134
Income (loss) before income taxes $ 1,525 $ (3,326) $ 476 $ (1,325)
======== ======== ======== ========
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2000
TOTAL
LATIN OTHER OTHER
ASIA PACIFIC AMERICA MARKETS INTERNATIONAL
------------ -------- ------- -------------
REVENUES:
Net premiums $ 22,126 $ 21,609 $ 5,307 $ 49,042
Investment income, net of related expenses 1,097 6,954 473 8,524
Realized investment gains (losses), net 2 (8,682) 54 (8,626)
Other revenue 657 (20) 168 805
-------- -------- -------- --------
Total revenues 23,882 19,861 6,002 49,745
BENEFITS AND EXPENSES:
Claims and other policy benefits 13,119 23,041 4,372 40,532
Interest credited -- 1,865 -- 1,865
Policy acquisition costs and other insurance
expenses 7,930 903 259 9,092
Other operating expenses 2,281 2,798 2,266 7,345
Interest expense 177 -- -- 177
-------- -------- -------- --------
Total benefits and expenses 23,507 28,607 6,897 59,011
Income (loss) before income taxes $ 375 $ (8,746) $ (895) $ (9,266)
======== ======== ======== ========
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16
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2001
TOTAL
LATIN OTHER OTHER
ASIA PACIFIC AMERICA MARKETS INTERNATIONAL
------------ -------- ------- -------------
REVENUES:
Net premiums $ 54,821 $ 32,495 $ 31,637 $ 118,953
Investment income, net of related expenses 2,281 7,736 1,251 11,268
Realized investment gains (losses), net 143 (2,868) (30) (2,755)
Other revenue 1,342 179 96 1,617
--------- --------- --------- ---------
Total revenues 58,587 37,542 32,954 129,083
BENEFITS AND EXPENSES:
Claims and other policy benefits 36,763 32,121 20,382 89,266
Interest credited -- 769 -- 769
Policy acquisition costs and other insurance
expenses 14,877 6,106 9,000 29,983
Other operating expenses 5,168 4,221 4,888 14,277
Interest expense 464 -- 290 754
--------- --------- --------- ---------
Total benefits and expenses 57,272 43,217 34,560 135,049
Income (loss) before income taxes $ 1,315 $ (5,675) $ (1,606) $ (5,966)
========= ========= ========= =========
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000
TOTAL
LATIN OTHER OTHER
ASIA PACIFIC AMERICA MARKETS INTERNATIONAL
------------ -------- ------- -------------
REVENUES:
Net premiums $ 41,203 $ 38,262 $ 10,733 $ 90,198
Investment income, net of related expenses 2,051 12,624 691 15,366
Realized investment gains (losses), net 19 (8,918) 318 (8,581)
Other revenue 741 153 1,102 1,996
--------- --------- --------- ---------
Total revenues 44,014 42,121 12,844 98,979
BENEFITS AND EXPENSES:
Claims and other policy benefits 24,638 37,074 7,629 69,341
Interest credited -- 2,012 -- 2,012
Policy acquisition costs and other insurance
expenses 14,668 3,865 2,274 20,807
Other operating expenses 4,754 6,622 4,777 16,153
Interest expense 297 -- -- 297
--------- --------- --------- ---------
Total benefits and expenses 44,357 49,573 14,680 108,610
Loss before income taxes $ (343) $ (7,452) $ (1,836) $ (9,631)
========= ========= ========= =========
Loss before income taxes for the other international segment totaled $1.3
million and $6.0 million for the second quarter and first six months of 2001,
respectively, compared to losses of $9.3 million and $9.6 million for the
comparable prior-year periods. The improvement in results for the second quarter
and first six months of 2001 is primarily attributed to $8.6 million in realized
investment losses incurred during the second quarter of 2000 related primarily
to the sale of Chilean subsidiaries (the "Chilean Sale") in the Latin America
sub-segment.
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Net premiums increased 27.9% and 31.9% during the second quarter and first six
months of 2001, respectively. The increase was primarily the result of renewal
premiums from existing blocks of business, new business premiums from
facultative and automatic treaties, and premium flows from larger blocks of
business in the Asia Pacific and Other Markets sub-segments. This increase was
partially offset by a planned reduction in sales of direct insurance in
Argentina and the Chilean Sale during the second quarter of 2000. 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 21.4% and 26.7% in the second quarter and first
six months of 2001, respectively, primarily due to a decrease in the Latin
America invested asset base from the Chilean Sale. Investment income and
realized investment gains and losses are allocated to the various operating
segments based on average assets and related capital levels deemed appropriate
to support the segment business volumes. Investment performance varies with the
composition of investments and the relative allocation of capital to units.
The amount of claims and other policy benefits increased 12.1% and 28.7% in the
second quarter and first six months of 2001, respectively, due primarily to
increased business volume. Claims and other policy benefits, as a percentage of
net premiums, were 72.4% and 75.0%, in the second quarter and first six months
of 2001, respectively, compared to 82.6% and 76.9% in the comparable prior year
periods. The decrease as a percentage of premiums is primarily due to the other
markets sub-segment, whose year-to-year comparisons of premiums and claims and
other policy benefits are not considered meaningful due to the start-up nature
of this sub-segment. Claims activity arising from the Argentine privatized
pension system during the second quarter of 2001 improved compared to the first
quarter experience. These claims are primarily death and disability benefits
that are indexed based on the underlying pension fund balances. Claims and other
policy benefits include claims paid, claims in the course of payment and
establishment of additional reserves to provide for unreported claims. Mortality
may fluctuate somewhat from period to period, but is expected to remain fairly
constant over the long term. The Company monitors mortality trends to evaluate
the appropriateness of reserve levels and adjusts the reserve levels on a
periodic basis. In connection with its Argentine privatized pension business,
the Company holds Argentine fixed maturity investments securities issued by the
government and various corporations. As of June 30, 2001, these securities had
an estimated fair value of $73.1 million and an amortized cost of $78.5 million.
The depreciation in value of these securities is reflected as unrealized
depreciation of securities, net of income taxes, on the consolidated balance
sheets. The fair value of these securities is subject to significant
fluctuations due to the current economic uncertainty in Argentina.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums were 25.7% and 25.2% in the second quarter and first six months of
2001, respectively, compared to 18.5% and 23.1% in the prior-year periods. These
percentages fluctuate due to the timing of client company reporting and
variations in the mixture of business being written. Other operating expenses
for the second quarter and first six months of 2001 decreased $0.5 million and
$1.9 million, respectively, primarily as a result of the Chilean Sale. As a
percentage of premiums, other operating expenses decreased to 10.9% and 12.0% in
the second quarter and first six months of 2001, respectively, from 15.0% and
17.9% in the prior year. The Company believes that sustained growth in premiums
should lessen the burden of start-up expenses and expansion costs over time.
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 decreased 7.3% during
the second quarter and increased 2.6% for the first six months of 2001. The
decrease is primarily related to a decrease in the investment income on the
underlying assets supporting a block of annuities. The crediting rate on this
block of annuities is based on the performance of the underlying assets.
Therefore, any fluctuations in investment income related to the underlying
assets are generally offset by a corresponding change in interest credited. The
average yield earned on investments was 7.16% and 7.36% for the second quarters
of 2001 and 2000, respectively. The decrease in overall
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yield reflected a general decrease in interest rates. Investment income and
realized investment gains and losses are allocated to the various operating
segments based on average assets and related capital levels deemed appropriate
to support the segment business volumes.
Consolidated other expenses represent general corporate expenses that are not
allocated to the operational segments.
The Consolidated effective tax rate for income taxes for continuing operations
was 39.1% and 39.2% for the second quarter and first six months of 2001,
compared to 45.8% and 42.7% in the comparable prior-year periods. The decrease
in the effective tax rate is primarily a result of tax implications on the sale
of the Chilean operation in the prior year.
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 break-even results for the second quarter and first six months
of 2001, compared to an after tax loss of $2.5 million and $6.0 million for the
comparable prior year periods. 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. The
experience on this block of business will continue to be monitored as the
business runs off.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 2001, the Company generated $116.6 million in
cash from operating activities, used $68.8 million of cash in investing
activities and generated $36.9 million in cash from financing activities. The
sources of funds of the Company's operating subsidiaries consist of premiums and
deposits received from ceding insurers, investment income, proceeds from sales
and redemption of investments, and cash infusions from RGA. Premiums are
generally received in advance of related claim payments. Funds are primarily
applied to policy claims and benefits, interest credited, operating expenses,
income taxes, and investment purchases.
As the Company continues its expansion efforts, management continually analyzes
capital adequacy issues. During the second quarter of 2000, the Company entered
into a credit agreement (the "Credit Agreement") with a bank syndicate, whereby
it may borrow up to $140.0 million to continue expansion of the Company's
business. Interest on borrowings is payable quarterly at rates based either on
the prime, federal funds or LIBOR rates plus a base rate margin defined in the
Credit Agreement. As of June 30, 2001, the Company had approximately $120.0
million outstanding under the Credit Agreement. The termination date of the
Credit Agreement is May 24, 2003. RGA Australian Holdings PTY, Limited
("Australian Holdings") has AUD$19.0 million (approximately $9.7 million)
outstanding on a line of credit as of June 30, 2001. The line of credit was
amended and restated in January 2001 (the "Australian Credit Agreement")
increasing the capacity to AUD$35.0 million (approximately $17.9 million) and
now expires December 2005. Interest on borrowings is payable quarterly at rates
based on Reuter rate quotes plus an applicable margin defined in the Australian
Credit Agreement. On May 8, 2000, RGA Holdings Limited, a wholly-owned
subsidiary of the Company, entered into a revolving credit facility (the "U.K.
Credit Agreement"), whereby it may borrow up to (pound)15.0 million
(approximately $21.2 million) for expansion of the Company's business primarily
in the United Kingdom. Interest on borrowings is payable quarterly at LIBOR
rates plus a base rate margin defined in the U.K. Credit Agreement. As of June
30, 2001, the Company had (pound)10.0 million (approximately $14.2 million)
outstanding under the U.K. Credit Agreement. The termination date of the U.K.
Credit Agreement is May 8, 2004. The Credit Agreement and the U.K. Credit
Agreement contain covenants that are considered usual and customary for
facilities of these sizes, types, and purposes.
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 statutory surplus of the Company's
subsidiaries and their ability to pay dividends, the investment earnings on the
undeployed funds at the Company, and the Company's ability to raise additional
capital. At June 30, 2001, RGA Reinsurance and RGA Canada had statutory capital
and surplus of $484.0 million and $184.3 million, respectively. The transfer of
funds from the subsidiaries to the Company is subject to applicable insurance
laws and regulations. The Company expects
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19
any future increases in liquidity needs due to treaty recaptures, relatively
large policy loans or unanticipated material claims levels would be met first by
operating cash flows and then by selling fixed-income securities or short-term
investments.
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. 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, including cash and short-term investments, totaled $4.7 billion
at June 30, 2001, compared to $4.6 billion at December 31, 2000. The increase
resulted primarily from positive operating cash flows. The Company has
historically generated positive cash flows from operations.
At June 30, 2001, the Company's portfolio of fixed maturity securities available
for sale had net unrealized losses before income taxes of $92.7 million.
MARKET RISK
Market risk is the risk of loss that may occur when fluctuations in interest and
currency exchange rates and equity and commodity prices change the value of a
financial instrument. Both derivative and nonderivative financial instruments
have market risk so the Company's risk management extends beyond derivatives to
encompass all financial instruments held that are sensitive to market risk. RGA
is primarily exposed to interest rate risk and foreign currency risk.
Interest Rate Risk arises from many of the Company's primary activities, as the
Company invests substantial funds in interest-sensitive assets and also has
certain interest-sensitive contract liabilities. The Company manages interest
rate risk and credit risk to maximize the return on the Company's capital
effectively and to preserve the value created by its business operations. As
such, certain management monitoring processes are designed to minimize the
impact of sudden and sustained changes in interest rates on fair value, cash
flows, and net interest income.
The Company is subject to foreign currency translation, transaction, and net
income exposure. The Company generally does not hedge the foreign currency
translation exposure related to its investment in foreign subsidiaries as it
views these investments to be long-term. Translation differences resulting from
translating foreign subsidiary balances to U.S. dollars are reflected in equity.
The Company generally does not hedge the foreign currency exposure of its
subsidiaries transacting business in currencies other than their functional
currency (transaction exposure). Currently, the Company believes its foreign
currency transaction exposure is not material to the consolidated results of
operations.
There has been no significant change in the Company's quantitative or
qualitative aspects of market risk during the quarter ended June 30, 2001 from
that disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements included in this Form 10-Q regarding the Company's business which
are not historical facts, including, without limitation, statements and
information relating to future financial performance, growth potential and
expectations, increases in premiums, the effect of mortality rates and
experience, claims levels, its views on the life reinsurance industry, and other
statements related to the Company's business 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, 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 assumptions relating to the foregoing. The words "intend",
"expect," "project," "estimate," "predict", "anticipate," "should," "believe"
and other similar expressions also are intended to identify forward-looking
statements. Forward-looking statements are inherently subject to risks and
uncertainties, some of which
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20
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) market conditions and the timing of sales of investment
securities, (2) regulatory action taken by the New York or Missouri Departments
of Insurance with respect to Metropolitan Life Insurance Company ("MetLife") or
General American Life Insurance Company ("General American") or the Company or
its subsidiaries, (3) changes in the credit ratings of the Company, MetLife, or
General American and the effect of such changes on the Company's future results
of operations and financial condition, (4) material changes in mortality and
claims experience, (5) competitive factors and competitors' responses to the
Company's initiatives, (6) general economic conditions affecting the demand for
insurance and reinsurance in the Company's current and planned markets, (7)
successful execution of the Company's entry into new markets, (8) successful
development and introduction of new products, (9) the stability of governments
and economies in foreign markets in which we operate, (10) fluctuations in U.S.
and foreign currency exchange rates, interest rates and securities and real
estate markets, (11) the success of the Company's clients, (12) changes in laws,
regulations, and accounting standards applicable to the Company and its
subsidiaries, and (13) other risks and uncertainties described in this Quarterly
Report and in the Company's other filings with the Securities and Exchange
Commission.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. WE DO NOT
UNDERTAKE ANY OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS, EVEN
THOUGH OUR SITUATION MAY CHANGE IN THE FUTURE. WE QUALIFY ALL OF OUR
FORWARD-LOOKING STATEMENTS BY THESE CAUTIONARY STATEMENTS.
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" which is incorporated by reference herein.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The Company is currently a party in several arbitrations primarily involving
group medical reinsurance coverages as discussed in Note 21 to the consolidated
financial statements contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000. 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. While it is not
feasible to predict or determine the ultimate outcome of the pending arbitration
or legal proceedings or provide reasonable ranges of potential losses, after
consideration of the provisions made in the Company's consolidated financial
statements it is the opinion of Management that the outcome of these disputes
would not have a material adverse effect on its consolidated financial position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on May 23, 2000
(b) At the Annual Meeting, the following proposals were voted upon by the
shareholders as indicated below:
1. To elect three directors to serve terms ending in 2002.
Directors Voted For Withheld
- --------- ---------- --------
William A. Peck, M.D. 47,911,037 28,720
William P. Stiritz 47,903,944 35,813
A. Greig Woodring 47,798,105 141,652
2. To authorize future sales of the Company's equity securities, including
Common Stock or other securities convertible into or exercisable for Common
Stock, from time to time to MetLife, Inc. or its affiliates.
Voted For Voted Against Abstained No Vote
---------- ------------- --------- ---------
37,371,301 9,419,506 8,654 1,140,296
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See index to exhibits.
(b) The following report on Form 8-K was filed with the Securities and
Exchange Commission during the three months ended June 30, 2001:
None.
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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 August 13, 2001
----------------------------------------------
A. Greig Woodring
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Jack B. Lay August 13, 2001
----------------------------------------------
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, incorporated by reference to
Form 10-Q for the quarter ended June 30, 1999 (No. 1-11848) filed
on November 12, 1999 at the corresponding exhibit.
3.2 Bylaws of Reinsurance Group of America, Incorporated, as amended,
incorporated by reference to Exhibit 3.2 to Form 10-Q for the
quarter ended September 30, 2000 (No. 1-11848), filed on November
13, 2000.
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
June 30, 1997 (No. 1-11848) filed May 21, 1997.
4.1 Form of Specimen Certificate for Common Stock of RGA, incorporated
by reference to Amendment No. 1 to Registration Statement on Form
S-1 (No. 33-58960), filed on April 14, 1993 at the corresponding
exhibit.
4.2 Rights Agreement dated as of May 4, 1993, between RGA and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent,
incorporated by reference to Amendment No. 1 to Form 10-Q for the
quarter ended June 30, 1997 (No. 1-11848) filed on May 21, 1997 at
the corresponding exhibit.
4.3 Second Amendment to Rights Agreement, dated as of April 22, 1998,
between RGA and ChaseMellon Shareholder Services, L.L.C. (as
successor to Boatmen's Trust Company), as Rights Agent,
incorporated by reference to Registration Statement on Form S-3
(No. 333-5177) filed on June 4, 1998 at the corresponding exhibit.
4.4 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.
4.5 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.
23