Reinsurance Group Of America's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Reinsurance Group of America, Inc. (RGA)

Q1 2012 Earnings Call

May 1, 2012 9:00 AM ET


Jack Lay – Senior EVP and CFO

Greig Woodring – President and CEO


Jimmy Bhullar – JP Morgan

Andrew Kligerman – UBS

Nigel Dally – Morgan Stanley

Steven Schwartz – Raymond James & Associates

John Nadel – Sterne Agee

Sarah DeWitt – Barclays

Ryan Krueger – Dowling & Partners

Sean Dargan – Macquarie

Jeffrey Schuman – KBW



Good day, and welcome to the Reinsurance Group of America First Quarter 2012 Results Conference Call. Today’s call is being recorded. At this time, I’d 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. Good morning to everyone, and welcome to RGA’s first quarter 2012 conference call. Joining me this morning is Greig Woodring, our CEO. I’ll turn the call over to Greig after a quick reminder about our forward-looking information and non-GAAP financial measures. Following Greig’s prepared remarks, we’ll open the line for questions.

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

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’ll make certain comments – or we’ll make comments on pre-tax and after-tax operating income, which is considered a non-GAAP financial measure under SEC guideline. 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 the quarterly financial supplement 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’ll turn it over to Greig for his comments.

Greig Woodring

Thank you, Jack and good morning everyone. Thanks for joining us. We’re pleased to report a good first quarter with operating income per share of $1.52. Our Canadian business continued its trend of producing strong results and we are also happy with the results out of Asia-Pacific and our US Asset Intensive business. These results were partially offset by elevated critical illness and mortality claims in the UK and slightly higher than expected individual mortality claims in the US.

Our effective tax rate this quarter was 32% slightly below our anticipated rate for the full year of 33%. We continue to feel some downward pressure on earnings as a result of the ongoing low interest rate environment. Investment income was down $30 million or 8% quarter-over-quarter, including a $49 million decrease in the fair value of option contracts supporting equity-indexed annuities. Excluding those contracts, investment income was up 6%.

The average portfolio yield dropped to 5.05% from 5.35% in the first quarter of 2011 and 5.19% in the fourth quarter of last year. Book value per share increased to $80.44, including AOCI and to $58.57 without it. The company’s capitalization and investment portfolios remained strong.

Turning now to our segment results. Our US Traditional business reported pre-tax operating income of $63 million, down a little from $66 million last year. The group disability business performed as expected but individual mortality claims came in a bit higher than expected. We view that higher claims as a typical fluctuation following in that 1% to 2% volatility range coupled with the seasonality effect we generally experienced during the first quarter of each year.

We typically see relatively higher claims and lower premiums in the first quarter due to the seasonality effects associated with higher debt rates during the winter months. Premiums were up 9% quarter-over-quarter, with help from an in-force transaction and solid growth in our group and health related businesses.

We’re pleased to report that we retained our number one position in the US for recurring new business during 2011 with a market share of 22.4% that is according to an SOA, Society of Actuaries that has sponsored reinsurance market study. In addition, we remained one of the top reinsurers in terms of in-force with the market share of 19%.

Our US Asset Intensive results were strong this quarter and pre-tax operating income rose 17% over $24 million. Favorable equity market conditions have benefited equity-indexed and variable annuity reinsurance in four of the last five quarters now. Our Financial Reinsurance business continues to produce strong fee income and added $6.5 million of pre-tax operating income in this quarter compared with $6.2 million a year ago.

Turning to Canada. Pre-tax operating income rose sharply to $47 million and 83% increase over the first quarter of 2011 with both periods benefiting from continuing mortality improvements, premium’s met expectations and were up slightly over a very strong first quarter of 2011. Just like the US our Canadian operations retained its leading position for recurring new business in 2011, the SOA survey showed a number one market share of 32.6% in Canada.

Turning to our international operations, first in Asia-Pacific. Similar to Canada this segment is off to a strong start with pre-tax operating income rising over 20% to $27 million this quarter reflecting favorable mortality experience. All markets contributed to the better than expected results this period. Disability claims in Australia which you may recall were elevated in the fourth quarter of 2011 were in line with expectations this period. Net premiums in this segment were a bit behind expectation totaling $325 million, a 4% increase over the prior year quarter. That sort of fluctuation in premium flows can result from timing and reporting practices of seeding companies, we expect it to even out over the course of 2012.

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