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» Reinsurance Group of America, Inc. Q2 2010 Earnings Call Transcript
» Reinsurance Group of America, Inc. Q1 2010 Earnings Call Transcript
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 from expected result is included in the earnings release we issued yesterday.In addition, during the course of the call, we will make comments on pretax 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 supplement for more information on this measure and reconciliations of operating income to net income for the various business segments. These documents and additional financial information may be found on our Investor Relations website at rgare.com. With that, I’ll turn it over to Greig for his comments. Greig Woodring Thank you, Jack, and good morning to everyone. Overall, claims experience was slightly higher than we expected this quarter, but well within a standard deviation. And weak equity markets and low interest environment also adversely affected our Asset Intensive business. Like most quarters, underwriting results were mixed by segment. Good results in Asia Pacific and Canada were offset by weak claims experience in our US and Europe and South Africa segments. Operating income was a $152 million or $2.04 up from last year’s $128 million or $1.72 per share. Current quarter results included tax benefit associated with the impact of previously enacted tax rate reductions and deferred tax liabilities in Canada, amounting to $33 million or $0.44 per share. Statutory tax rates both at the federal and provincial had been lowered and the adjustment rates, and it relates to applying the lower tax rates to the related deferred tax liability on the balance sheet. Since we’ve built up a sizable deferred tax liability in Canada over time, the adjustments reflect the lower enacted rates was reasonably significant.
Foreign currency fluctuations helped operating income by $4.5 million or about $0.06 per share. Annualized operating ROE was 14% for the quarter and 13% over the last 12 months. Consolidated net income totaled a $147 million or $1.98, up from a $128 million or $1.72 per share last year. Reported premiums were $1.8 billion, up 8% quarter-over-quarter. The third quarter of 2010 included a one-time annuity premium. Ignoring that, the premiums increased about 7% in original currencies.Investment income was off 7% this quarter, totaling $268 million with the yield of 5.29%, which is down 37 basis points from last year’s third quarter. Contributing to this decline in investment income was a net $38 million decrease in the fair value of option contracts supporting equity-indexed annuities. Excluding those contracts, investment income was up 6% quarter-over-quarter, despite the decline in yield. Our net unrealized gain position grew to $1.1 billion, an increase of 46% since the second quarter, adding $4.81 to book value per share, which is now 77.29. Excluding AOIC, book value per share is $59.48. Its current interest rate environment continues to put downward pressure on our overall portfolio yield as we invest new money at lower rates. Our third quarter yield was 5.29% compared to 5.66% last year as we said, and 5.35% in the second quarter of this year. And while this trend adversely affects our investment income, we do not feel that it will force us to write-down deferred acquisition costs or to bolster reserves or capital even if low interest rates persist for five years or longer. RGA’s results continue to be primarily driven by our ability to price mortality and morbidity risks. While we closely manage market risk such as interest rates and equity markets, they are secondary to mortality risk for our overall performance and long-term outlook.
Regarding the new accounting guidance and deferred acquisition cost which will take effect early next year, we expect to reduce capital by about 6% to 9% excluding AOIC. Further we project operating income to be adversely affected by 6% to 10% in 2012. This is a noneconomic accounting change that simply changes the timing of expense recognition for certain acquisition costs. The impact to income reflects our relatively higher organic growth in recent years and the long amortization periods for our mortality business.Read the rest of this transcript for free on seekingalpha.com