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

May 05, 2010 | About:
10qk

10qk

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REINSURANCE GROUP OF AMERICA, INC. (RGA) filed Quarterly Report for the period ended 2010-03-31.

Reinsurance Group Of America, Inc. has a market cap of $3.66 billion; its shares were traded at around $50.18 with a P/E ratio of 8 and P/S ratio of 0.7. The dividend yield of Reinsurance Group Of America, Inc. stocks is 0.9%. Reinsurance Group Of America, Inc. had an annual average earning growth of 9.4% over the past 10 years. GuruFocus rated Reinsurance Group Of America, Inc. the business predictability rank of 2.5-star.RGA is in the portfolios of NWQ Managers of NWQ Investment Management Co, John Keeley of Keeley Fund Management, Steven Cohen of SAC Capital Advisors, Chuck Royce of Royce& Associates, Chuck Royce of Royce& Associates, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

Consolidated income before income taxes increased $159.1 million, or 465.1% for the first quarter of 2010, as compared to the same period in 2009. The increase was primarily due to a decrease in investment impairments and a favorable change in the value of embedded derivatives within the U.S. segment due to the impact of tightening credit spreads in the U.S. debt markets. Also contributing to the favorable results were increased net premiums and investment income. Foreign currency fluctuations relative to the prior year favorably affected income before income taxes by approximately $10.8 million for the first quarter of 2010, as compared to the same period in 2009.

The Company recognizes in consolidated income, changes in the value of embedded derivatives on modified coinsurance or funds withheld treaties, equity-indexed annuity treaties (EIAs) and variable annuity products. The change in the value of embedded derivatives related to reinsurance treaties written on a modified coinsurance or funds withheld basis are subject to the general accounting principles for Derivatives and Hedging related to embedded derivatives. The unrealized gains and losses associated with these embedded derivatives, after adjustment for deferred acquisition costs, had a favorable effect on income before income taxes of $38.7 million for the first quarter of 2010, as compared to the same period in 2009. Changes in risk free rates used in the fair value estimates of embedded derivatives associated with EIAs affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with EIAs, after adjustment for deferred acquisition costs and retrocession, affected income before income taxes favorably by $3.2 million in the first quarter of 2010, as compared to the same period in 2009. The change in the Companys liability for variable annuities associated with guaranteed minimum living benefits affects the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with guaranteed minimum living benefits, after adjustment for deferred acquisition costs, affected income before income taxes favorably by $34.6 million in the first quarter of 2010, as compared to the same period in 2009.

Consolidated net premiums increased $282.4 million, or 21.0%, for the three months ended March 31, 2010, as compared to the same period in 2009, due to growth in life reinsurance in force and foreign currency fluctuations. Foreign currency fluctuations favorably affected net premiums by approximately $104.0 million for the first quarter of 2010, as compared to the same period in 2009. Consolidated assumed life insurance in force increased to $2,363.1 billion as of March 31, 2010 from $2,121.3 billion as of March 31, 2009 due to new business production and favorable foreign currency fluctuations. The Company added new business production, measured by face amount of insurance in force, of $78.8 billion and $85.2 billion during the first quarter of 2010 and 2009, respectively. Management believes industry consolidation and the established practice of reinsuring mortality risks should continue to provide opportunities for growth, albeit at rates less than historically experienced.

Consolidated investment income, net of related expenses, increased $81.1 million, or 36.3%, for the three months ended March 31, 2010, as compared to the same period in 2009, primarily due in part to market value changes related to the Companys funds withheld at interest investment associated with the reinsurance of certain EIAs, which are substantially offset by a corresponding change in interest credited to policyholder account balances resulting in a negligible effect on net income. The first quarter increase in investment income also reflects a larger average invested asset base and a higher effective investment portfolio yield. Average invested assets at amortized cost at March 31, 2010 totaled $15.1 billion, a 17.9% increase over March 31, 2009. The average yield earned on investments, excluding funds withheld, increased to 5.84%, for the first quarter of 2010 from 5.57% for the first quarter of 2009. The average yield will vary from quarter to quarter and year to year depending on a number of variables, including the prevailing interest rate and credit spread environment, changes in the mix of the underlying investments and cash balances, and the timing of dividends and distributions on certain investments.

Total investment related gains (losses), net improved by $203.4 million, for the three months ended March 31, 2010, as compared to the same period in 2009. The improvement for the first quarter is primarily due to favorable changes in the embedded derivatives related to reinsurance treaties written on a modified coinsurance or funds withheld basis and guaranteed minimum living benefits of $135.0 million and a decrease in investment impairments, net of non-credit adjustments, of $29.3 million, partially offset by an increase in net hedging losses related to the liabilities associated with guaranteed minimum living benefits of $14.5 million. See Note 4 Investments and Note 5 Derivative Instruments in the Notes to Condensed Consolidated Financial Statements for additional information on the impairment losses and derivatives. Investment income and investment related gains and losses are allocated to the operating segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes.

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