Reinsurance Group of America, Inc. (



Q2 2011 Earnings Call Transcript

July 26, 2011 9:00 a.m. ET


Greig Woodring - President and CEO

Jack Lay - SEVP and CFO


Jeffrey Schuman - KBW

Jimmy Bhullar - JPMorgan

John Nadel - Sterne Agee

Andrew Kligerman - UBS

Steven Schwartz - Raymond James

Thomas Gallagher - Credit Suisse

Colin Devine - Citi



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Good day, and welcome to the Reinsurance Group of America Second Quarter 2011 Conference Call. Today's call is being recorded. At this time I would like to introduce the President and Chief Executive Officer, Mr. Greig Woodring; and Senior Executive Vice President and Chief Financial Officer Mr. Jack Lay. Please go ahead.

Jack Lay

This is Jack, thanks to everyone for joining us this mornings for RGA's second quarter 2011 conference call. With me this morning is Greig, our CEO. I’ll turn the call over to Greig after a quick reminder of our forward-looking information and non-GAAP financial measures. Following Greig’s prepared comments, we’ll open the line for your questions.

To help you better understand RGA’s business, we will make certain statements and discuss certain subjects during this call that will contain forward-looking information, including among other things, comments about investment performance, statements relating to projections of revenue or earnings, and future financial performance and growth potential of RGA and its subsidiaries.

Please keep in mind that actual results could differ materially from the expected results. A list of important factors that could cause actual results to differ materially from expected results is included in the earnings release we issued yesterday.

In addition, during the course of this call, we will make comments on a pre-tax and after tax operating income, which is considered a non-GAAP financial measure under SEC regulations. We believe this measure better reflects the ongoing profitability and underlying trends of our business.

Please refer to the tables in our press release and quarterly financial supplements for more information on this measure and reconciliations of operating income to net income for our various business segments. These documents and additional financial information may be found on our investor relations website at

With that I will turn the call over to Greig for his comments.

Greig Woodring

The consolidated results for the quarter were in line with our expectations. We had mixed underwriting results, including better than expected performance in Canada and some adverse results in some of our international operations.

US operations our largest segment performed in line with expectations including solid contributions from Asset Intensive business. On the whole, we met our expectations in terms of reported operating income which totaled a $128 million or $1.72 per diluted share, up from last years 122 million or $1.63.

Foreign currency fluctuations helped operating income by $3.8 million or about $0.05 share. Annualized operating ROE was 12% this quarter and was 13% over the last 12 months. Consolidated net income totaled a 133 million or a $1.78 per diluted share, up from a $127 million or a $1.70 per share last year.

Reported premiums were 1.8 billion, up 13% quarter-over-quarter. Ignoring the look from currency fluctuations, premiums rose 8%, a little off our expected pace perhaps. Investment income increased 16% this quarter, totaling $337 million with the yield of 5.35%. Yield was down compared to last years’ second quarter, but was flat with the first quarter of 2011.

Contributing to the increase in investment income was a $20 million rise in the fair value of option contract, supporting equity-indexed annuities. Without the effect of those option contracts, investment income was up 9% quarter-over-quarter; a good result which reflects the continued growth of our invested asset base.

Investment impairments were relatively low again. Our net realized gain position increased nearly 25% this quarter, adding over $2 to book value per share, which now stands at $71.88 per share. Excluding all other comprehensive income, book value per share is $57.51.

Capital management continues to be an area of focus for RGA. We are pleased to report a 50% increase in our quarterly shareholder dividend, which as announced yesterday rises from $0.12 to $0.18 per share. This action reflects our strong capital and liquidity positions, while providing flexibility for future growth opportunities.

Further, we took advantage of a relatively low interest rate environment to issue $400 million of senior notes in May.

Turning to our operating segments; our US traditional business produced pre-tax operating income of $93 million, compared to $96 million last year. Premiums were up 4% this quarter; totaling $974 million.

Our large mortality block performed in line with expectations; however, we did experience some normal adverse claims volatility in our group [LTD] business, contributing to the slight decrease from an excellent 2010 result.

Our US Asset Intensive business reported another strong quarter with pre-tax operating income of $20 million, up from $16 million a year ago. We still expect an average run rate of $15 million or $16 million per quarter from this business.

This quarter we benefited primarily from better than expected spreads on our equity indexed annuity blocks. Also our financial reinsurance business performed well this quarter, with strong fee income. That business reported $7 million in pre-tax operating income, up from $4.4 million a year ago.

Turning now to Canada; our pre-tax operating income rose sharply to $42 million, up 27% over a strong $33 million result last year. Virtually everything went our way this quarter including a strong premium growth, better than expected mortality experience and favorable currency fluctuations.

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