Reinsurance Group Of America, Inc. Q1 2010 Earnings Call Transcript

Reinsurance Group of America, Inc. Q1 2010 Earnings Call Transcript
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Reinsurance Group of America, Inc. (RGA)

Q1 2010 Earnings Call

April 27, 2010; 9:00 am ET

Executives

Greig Woodring - President and CEO

Jack Lay - SEVP and CFO

Analysts

Jeff Schuman - KBW

Mark Finkelstein - Macquarie

John Nadel - Sterne Agee

Jimmy Bhullar - JPMorgan

Steven Schwartz - Raymond James & Associates

Presentation

Operator

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Good day and welcome to the Reinsurance Group of America first quarter 2010 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, Mr. Lay.

Jack Lay

Okay. Thank you and good morning to everyone, joining us for RGA's first quarter 2010 conference call. Greig Woodring, will briefly comment on our results we released yesterday and then we'll respond to questions from our participants. I'll turn the call over to Greig after a quick reminder related to forward-looking information and our use of non-GAAP financial measures.

We'll make certain statements and discuss certain subjects during the call that will contain forward-looking information including among other things, investment performance, statements relating to projections of revenue or earnings and future performance and growth potential of RGA and its subsidiaries.

You are cautioned that actual results could differ materially from expected results. A list of important factors that could cause actual results to differ materially from the expected results is included in the earnings release issued yesterday.

In addition, during the course of the call, we'll make comments about our results based upon operating income both on a pretax and after-tax basis. Under SEC regulations; operating income is considered a non-GAAP financial measure. We believe this measure better reflects the ongoing profitability and underlying trends of our continuing operations. Please refer to the tables in our press release for more information on this measure and reconciliations of operating income to net income for the various business segments.

With that, I'll turn the call over to Greig.

Greig Woodring

Good morning. Thank you for joining us. I will provide some brief comments on our first quarter results and then we will open the line for your questions. Our first quarter results are mixed, we continue to show up on the balance sheet as our investment portfolio continues to increase in value and asset impairments were limited. The capital base increased to its highest level yet.

Our first quarter consolidated operating income totaled $93 million or $1.25 per diluted share significant increases on both counts over difficult 1Q '09 but below what we expected. The primary source of our current period shortfall was adverse mortality experience in our US traditional market.

I will address specific aspects of this business in a moment. Foreign currency fluctuations added $0.08 per share compared to first quarter '09 and an increase in the company's tax provision took away $0.07 per share. We expect the tax provision increase to reverse later in the year. Consolidated net income increased to $122.4 million, or $1.64 again significantly surpassing a difficult first quarter '09.

Recall that the first quarter '09 reflected substantial realized and unrealized losses from investments and derivatives. Consolidated net premiums including $74 million from the ReliaStar Group Insurance acquisition, were at expected levels and totaled $1.6 billion during the quarter an increase of 13% on an original currency basis and 21% on a reported US dollar basis over first quarter '09.

Net investment income was strong compared to 1Q '09 and our unrealized gain position continued to rise along with the overall strength of our investment portfolio. Likewise our capital and liquidity positions are at all time highs. Impairment losses reflected an income were just $6.3 million this quarter down substantially from $41.5 million in last year's first quarter.

Out traditional US business reported pre-tax operating income of $61 million compared to $72.6 million in the first quarter of '09. Both periods reflected higher than expected claims as did the first quarter of '08. Premiums were up 15% for the quarter including the ReliaStar business at 6% (inaudible). 2009 the US traditional business generated a 13% return based upon models of our issue year cohorts we expect that to fall a bit in this year and bottom out as the business begins the slow rise upward.

For 2010 we expect to see low double-digits returns on US mortality business and returns around 13% for RGA as a whole. This quarter much like the first quarter of the past couple of years contained the seasonality effect of high claims close with our lowest quarterly premium loans although better in the first quarter of the past two years this quarter's claims were 1% to 2% higher than expected in the US.

We continually reassess mortality trends, which has implications for pricing of new business and for long-term profitability. Our current pricing always takes into account the most current information and targets the long-term return of at least 13%.

Our US asset intensive business reported another strong quarter as the broader capital markets continued its rebound. $16.5 million of pretax operating income this quarter was just ahead of the expected run rate of $15 million to $16 million per quarter.

Turning to Canada, pretax operating income for the quarter totaled $16 million compared to $17.8 million last year and decrease was due to somewhat higher than expected claims experienced in the current period. Premiums were strong this quarter increasing 27% on a Canadian dollar basis. We continue to see a strong flow of credit like businesses.

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