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REINSURANCE GROUP OF AMERICA, INC. Reports Operating Results (10-Q)

August 07, 2012 | About:
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10qk

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REINSURANCE GROUP OF AMERICA, INC. (RGA) filed Quarterly Report for the period ended 2012-06-30.

Reinsurance Group Of America Inc has a market cap of $4.12 billion; its shares were traded at around $56.59 with a P/E ratio of 7.9 and P/S ratio of 0.5. The dividend yield of Reinsurance Group Of America Inc stocks is 1.3%. Reinsurance Group Of America Inc had an annual average earning growth of 7.5% over the past 10 years.
This is the annual revenues and earnings per share of RGA over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of RGA.


Highlight of Business Operations:

Embedded Derivatives - modco/Funds Withheld Treaties- Represents the change in the fair value of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis, allowing for deferred acquisition expenses. Changes in the fair value of the embedded derivative are driven by changes in investment credit spreads, including the Company’s own credit spread. Generally, an increase in investment credit spreads, ignoring changes in the Company’s own credit spread, will have a negative impact on the fair value of the embedded derivative (decrease in income). Changes in fair values of these embedded derivatives are net of an increase (decrease) in revenues of $6.3 million and $(0.4) million for the three months and $(57.2) million and $(24.3) million for the six months ended June 30, 2012 and 2011, respectively, associated with the Company’s own credit risk. A 10% increase in the Company’s own credit risk rate would have increased revenues by approximately $0.8 million for the six months ended June 30, 2012. Conversely, a 10% decrease in the Company’s own credit risk rate would have decreased revenues by approximately $0.8 million for the six months ended June 30, 2012.

In the second quarter of 2012, the change in fair value of the embedded derivative decreased revenues by $4.6 million and related deferred acquisition expenses decreased benefits and expenses by $0.5 million, for a negative pre-tax income impact of $4.1 million. During the second quarter of 2011, the change in fair value of the embedded derivative increased revenues by $10.5 million and related deferred acquisition expenses increased benefits and expenses by $4.7 million, for a positive pre-tax income impact of $5.8 million, primarily due to an increase in investment credit spreads. In the first six months of 2012, the change in fair value of the embedded derivative decreased revenues by $14.0 million and related deferred acquisition expenses decreased benefits and expenses by $12.9 million, for a negative pre-tax income impact of $1.1 million, primarily due to an increase in investment credit spreads. During the first six months of 2011, the change in fair value of the embedded derivative increased revenues by $101.1 million and related deferred acquisition expenses increased benefits and expenses by $65.7 million, for a positive pre-tax income impact of $35.3 million, primarily due to an increase in investment credit spreads.

In the second quarter of 2012, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, increased revenues by $16.1 million and related deferred acquisition expenses increased benefits and expenses by $10.0 million for a positive pre-tax income impact of $6.1 million. In the second quarter of 2011, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated free-standing derivatives increased revenues by $1.3 million and related deferred acquisition expenses increased benefits and expenses by $0.8 million for a positive pre-tax income impact of $0.5 million. In the first six months of 2012, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, increased revenues by $66.8 million and related deferred acquisition expenses increased benefits and expenses by $43.5 million for a positive pre-tax income impact of $23.3 million. In the first six months of 2011, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated hedge instruments increased revenues by $14.0 million and related deferred acquisition expenses increased benefits and expenses by $9.0 million for a positive pre-tax income impact of $5.0 million.

Other revenues increased $16.8 million, or 231.0%, and $15.7 million, or 99.8%, for the three and six months ended June 30, 2012, as compared to the same periods in 2011. The primary source of other revenues is fees from financial reinsurance treaties in Japan. The increase in other revenues for the second quarter included a transaction with a client in Australia which resulted in a one-time fee income amount of $12.2 million. The transaction did not have a significant impact on income before taxes because the amount is offset by additional amortization of deferred acquisition costs, net of the release of reserves. Other revenues for the second quarter and first six months of 2012 also reflected fees from two new financial reinsurance treaties in Japan. At June 30, 2012 and 2011, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial reinsurance structures was $2.5 billion and $1.7 billion, respectively. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period.

Total revenues decreased $14.1 million, or 33.8%, and $31.1 million, or 37.0%, for the three and six months ended June 30, 2012, as compared to the same periods in 2011. The decrease for the second quarter was primarily due to a $7.4 million decrease in investment income, due to a lower invested asset base and lower investment yields, and a $5.9 million decrease in investment related gains. The decrease in revenues for the first six months was largely due to a $17.7 million decrease in investment income due to a lower invested asset base and lower investment yields. Additionally, there was a $9.6 million decrease in investment related gains.

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