<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
COMMISSION FILE NUMBER 1-11848
REINSURANCE GROUP OF AMERICA, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-1627032
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
660 MASON RIDGE CENTER DRIVE
ST. LOUIS, MISSOURI 63141
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(314) 453-7439
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
-----------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
COMMON STOCK OUTSTANDING ($.01 PAR VALUE) AS OF APRIL 30, 1996: 16,824,396
SHARES
<PAGE> 2
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Item Page
- ---- ----
PART I - FINANCIAL INFORMATION
------------------------------
<C> <S> <C>
1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements
of Income (Unaudited)
Three months ended March 31, 1996 and 1995 4
Condensed Consolidated Statements
of Cash Flows (Unaudited)
Three months ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
PART II - OTHER INFORMATION
---------------------------
1 Legal Proceedings 12
6 Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
<PAGE> 3
<TABLE>
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1996 1995
------------ -------------
(Dollars in thousands)
Assets
<S> <C> <C>
Fixed maturity securities
Available for sale-at fair value (amortized cost of $1,135,660 and
$834,314 at March 31, 1996 and December 31, 1995, respectively) $1,162,269 $ 887,457
Policy loans 372,834 346,942
Funds withheld at interest 123,393 101,841
Short-term investments 134,438 66,161
Other invested assets 3,814 3,112
----------- -----------
Total investments 1,796,748 1,405,513
Cash and cash equivalents 14,927 18,258
Accrued investment income 26,063 17,657
Premiums receivable 72,780 84,731
Funds withheld 31,019 28,644
Reinsurance ceded receivables 74,211 64,076
Deferred policy acquisition costs 193,734 186,813
Other reinsurance balances 112,512 158,967
Other assets 30,182 25,275
----------- -----------
Total assets $2,352,176 $1,989,934
=========== ===========
Liabilities and Stockholders' Equity
Future policy benefits $ 644,545 $ 601,674
Interest sensitive contract liabilities 785,363 598,935
Other policy claims and benefits 222,507 207,673
Other reinsurance balances 105,985 105,178
Deferred income taxes 55,450 61,169
Other liabilities 58,905 30,495
Long-term debt 104,349 -
----------- -----------
Total liabilities 1,977,104 1,605,124
Minority interest 8,066 7,881
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock (par value $.01 per share; 10,000,000 shares authorized; no
shares issued or outstanding) - -
Common stock (par value $.01 per share; 50,000,000 shares authorized,
17,366,250 shares issued) 174 174
Additional paid in capital 263,169 263,169
Currency translation adjustments (3,516) (3,736)
Unrealized appreciation of securities, net of taxes 13,444 33,010
Retained earnings 107,160 97,802
----------- -----------
Total stockholders' equity before treasury stock 380,431 390,419
Less cost of 541,854 and 544,354 shares reacquired and held in treasury at
March 31, 1996 and December 31, 1995, respectively (13,425) (13,490)
----------- -----------
Total stockholders' equity 367,006 376,929
----------- -----------
Total liabilities and stockholders' equity $2,352,176 $1,989,934
=========== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three months ended
March 31,
----------------------------------------
1996 1995
------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C>
Revenues:
Net premiums $ 167,892 $ 139,589
Investment income, net of related expenses 27,875 20,724
Realized investment gains (losses), net 562 133
Other revenue 4,093 63
----------- -----------
Total revenues 200,422 160,509
Benefits and expenses:
Claims and other policy benefits 143,685 120,580
Policy acquisition costs and other insurance expenses 30,425 18,829
Other operating expenses 8,993 6,553
Interest expense 291 -
----------- -----------
Total benefits and expenses 183,394 145,962
----------- -----------
Income before income taxes and minority interest 17,028 14,547
Provision for income taxes 6,249 5,387
----------- -----------
Income before minority interest 10,779 9,160
Minority interest in earnings of consolidated subsidiaries (243) (272)
----------- -----------
Net income $ 10,536 $ 8,888
=========== ===========
Earnings per common and common equivalent share $ 0.62 $ 0.53
=========== ===========
Weighted average number of common and common equivalent
shares outstanding (in thousands) 16,984 16,868
=========== ===========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE> 5
<TABLE>
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended
March 31,
----------------------------------------
1996 1995
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Operating Activities:
Net income $ 10,536 $ 8,888
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in:
Accrued investment income (8,403) (6,476)
Premiums receivable 11,975 (4,980)
Deferred policy acquisition costs (6,904) (6,658)
Funds withheld (2,375) 568
Reinsurance ceded balances (10,057) (4,917)
Future policy benefits, other policy claims and benefits, and
other reinsurance balances 115,898 96,655
Deferred income taxes 5,634 (1,644)
Other assets and other liabilities 23,277 (5,792)
Amortization of goodwill and value of business acquired 274 111
Amortization of net investment discounts (2,600) (1,168)
Realized investment gains, net (562) (133)
Other, net 276 141
---------- ----------
Net cash provided by operating activities 136,969 74,595
Investing Activities:
Sales of fixed maturity securities:
Available for sale 14,551 20,196
Maturities of fixed maturity securites:
Held to maturity - 198
Available for sale 15,115 11,474
Purchases of fixed maturity securities:
Held to maturity - (879)
Available for sale (333,429) (70,954)
Cash invested in:
Policy loans (25,892) -
Funds withheld at interest (21,552) (17,997)
Principal payments on:
Policy loans - 1,319
Change in short-term and other invested assets (69,132) (21,646)
---------- ----------
Net cash used in investing activities (420,339) (78,289)
Financing activities:
Dividends to stockholders (1,178) (1,012)
Purchase of treasury stock - (2,422)
Reissuance of treasury stock 65 156
Minority interest in earnings 243 272
Excess deposits on universal life and other investment type
policies and contracts 176,515 (2,364)
Proceeds from long-term debt issuance 104,222 -
---------- ----------
Net cash provided by financing activities 279,867 (5,370)
Effect of exchange rate changes 172 (12)
---------- ----------
Change in cash and cash equivalents (3,331) (9,076)
Cash and cash equivalents, beginning of period 18,258 11,496
---------- ----------
Cash and cash equivalents, end of period $ 14,927 $ 2,420
========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE> 6
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited, condensed, consolidated financial
statements of Reinsurance Group of America, Incorporated and
Subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been
included. Operating results for the three months ended March
31, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996. For
further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual
Report for the year ended December 31, 1995.
2. EARNINGS PER SHARE
Earnings per share was computed by dividing net income by the
weighted average number of common shares outstanding during
the period. Outstanding employee stock options, which are
reflected as common stock equivalents using the treasury stock
method, have been considered in net earnings per share
calculations.
3. SIGNIFICANT TRANSACTION
On March 22, 1996, Reinsurance Group of America, Incorporated
completed the sale of $100,000,000 of 7-1/4% Senior Notes in
accordance with Rule 144A of the Securities Act of 1933, as
amended. Interest is payable semiannually on April 1 and
October 1 with the principal amount due April 1, 2006.
4. STOCK OPTIONS
In January 1996, 14,452 additional stock options were awarded
at a strike price of $35.125. These options will expire in
ten years, and most vest, or become exercisable, in increasing
percentages over a period from three to six years after the
grant. Half of the options belonging to two of the three
recipients vest in 25% increments--25% immediately and 25% on
the last day of 1996, 1997, and 1998.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
- ------------------------------------------
RESULTS OF OPERATIONS
Net Premiums. Net premiums increased $28.3 million, or 20.3%,
to $167.9 million in the first quarter of 1996 compared to $139.6
million for the same period in 1995.
<TABLE>
Premiums by major segment were as follows (in millions):
<CAPTION>
Change
--------------
1996 1995 Dollars Percent
---- ---- ------- -------
<S> <C> <C> <C> <C>
U.S. ordinary life $ 126.3 103.3 23.0 22.3
Canadian ordinary life 13.3 10.7 2.6 24.3
Accident and health 14.4 11.6 2.8 24.1
Other international 13.9 14.0 (0.1) (0.7)
---- ---- ----
Totals $ 167.9 139.6 28.3 20.3
======= ===== ==== ====
</TABLE>
Renewal premiums in the U.S. ordinary life segment increased
$14.8 million, or 14.6%, to $116.0 million in the first quarter
of 1996 compared to the same period in 1995. Included in these
numbers is a premium increase of $4.5 million due to a recapture
of retroceded policies. Premium from business derived from the
ITT transaction totaled $6.7 million for the quarter. This
transaction was effective July 1, 1995, and there was no such
premium in the comparable quarter of 1995. New business premium,
which fluctuates due to the timing of production and normal
reporting lags experienced from client companies, increased $4.8
million to $15.7 million for the first quarter of 1996.
On an original currency basis, Canadian ordinary life premiums
increased $3.2 million, or 21.6%. The increase consists of $3.3
million, or 27.7%, in renewal premiums which was offset by a
slight decline in new business premium of $0.1 million. The
first quarter is largely a renewal quarter and several of the
treaties processed related to closed blocks of calendar year
business. New business premiums fluctuate from quarter to
quarter due to normal reporting lags experienced by client
companies and the timing of production.
Accident and health premiums increased $2.8 million, or 24.1%.
The increase is primarily from growth in business from the
Company's contact office in London, while premium levels in the
domestic business increased approximately $0.4 million.
7
<PAGE> 8
The Company's other international business remained relatively
stable from year to year. Premiums in the South America
operations decreased $0.9 million as the mix of business changed
compared with the prior year. The premium in the current year is
largely derived from BHIF America, a joint venture in Chile,
where the single premium immediate annuity business continues to
grow. This growth is offset by the change in the terms for the
mortality risk reinsurance assumed from Argentina. In the Asia
Pacific operations, premiums increased $0.8 million resulting
from the growth in the base of business from the prior year.
Investment Income, Net. Investment income, net of investment
expenses, increased $7.2 million, or 34.8%, to $27.9 million in the first
quarter of 1996 from $20.7 million for the same period in 1995. The cost
basis of invested assets increased $472.7 million from the first quarter
of 1995. The increase in invested assets is a result of operating cash
flows, as well as reinsurance transactions involving cash deposits from
ceding companies of $179.3 million and $112.5 million during 1996 and the
second half of 1995, respectively. The average earned yield on the
consolidated investment portfolio is 7.50% for the first quarter of 1996
compared to 7.57% for the same period in 1995.
Realized Investment Gains/(Losses), Net. In the first quarter of
1996, the company reported net realized investment gains of $0.6 million
compared to $0.1 million for prior year. Net realized investment gains
resulted from activity to achieve a better match of portions of the
portfolio to the related liabilities.
Other Revenue. Other revenue increased $4.0 million in the first
quarter of 1996 compared to the same period in 1995. Other revenue
includes items such as profit and risk fees associated with financial
reinsurance as well as management fee income and miscellaneous income
associated with late premium payments. This increase is primarily the
result of fee income associated with the assumption of certain financial
reinsurance treaties resulting in an additional $3.4 million in financial
reinsurance fees, which was partially offset by fees paid to
retrocessionaires of $3.0 million included in other insurance expenses.
8
<PAGE> 9
Claims and Other Policy Benefits. Claims and other policy benefits
increased $23.1 million, or 19.2%, to $143.7 million in the first quarter
of 1996 compared to $120.6 million for the same period in 1995.
<TABLE>
Claims and other policy benefits by major segment are as follows:
<CAPTION>
Change
--------------
1996 1995 Dollars Percent
---- ---- ------- -------
<S> <C> <C> <C> <C>
U.S. ordinary life $ 109.1 94.3 14.8 15.7
Canadian ordinary life 12.2 7.3 4.9 67.1
Accident and health 11.2 8.6 2.6 30.2
Other international 11.2 10.4 0.8 7.7
---- ---- ---
Totals $ 143.7 120.6 23.1 19.2
======= ===== ==== ====
</TABLE>
The increase in claims in the U.S. ordinary life segment is the
result of an overall increase in the amount at risk, which
corresponds with the overall increase in premiums. Mortality was
slightly in excess of expectations. On an original currency
basis, Canadian claims and other policy benefits increased $6.4
million when compared to the same period in 1995. This was
reduced by $0.3 million due to the change in the foreign exchange
rates. In Canada, mortality was also slightly above the
expectation for the first quarter of 1996, while mortality was
extremely favorable during the first quarter of 1995. In
addition, reserve levels increase in relation to the overall
increase in the amount at risk and the aging of the existing
blocks of business. The accident and health segment increase
results from the increase in premiums from the London operations
and additional reserves in anticipation of commuting the
Company's obligations on several closed blocks of business.
South American and Asia Pacific reserve increases related to new
business being written, and this is reflected in the claims
increase in other international.
Policy Acquisition Costs and Other Insurance Expenses. Policy
acquisition costs and other insurance expenses totalled $30.4
million, or 18.1% of net premium for the quarter. This compares
to 17.2% of net premiums for the entire year ended 1995.
9
<PAGE> 10
<TABLE>
Policy acquisition costs and other insurance expenses by major
segment were as follows:
<CAPTION>
Change
--------------
1996 1995 Dollars Percent
---- ---- ------- -------
<S> <C> <C> <C> <C>
U.S. ordinary life $ 22.7 13.1 9.6 73.3
Canadian ordinary life 1.9 2.0 (0.1) 5.0
Accident and health 3.7 3.0 0.7 23.3
Other international 2.1 0.7 1.4 200.0
--- --- ---
Totals $ 30.4 18.8 11.6 61.7
======== ==== ==== ====
</TABLE>
In the U.S. ordinary life segment, policy acquisition costs and
other insurance expenses increased as a percent of net premium to
approximately 18.0% compared to 17.3% for the entire year of
1995. The increase in the U.S. ordinary life segment results
primarily from the financial reinsurance business, coupled with
an overall increase in the amount at risk from the prior year.
The increase is offset partially by the overall shift of business
from coinsurance to yearly renewable term and lower expense rates
on new business. The Canadian ordinary life segment's decrease
is the result of processing significant blocks of renewal
business during the first quarter that carry lower net renewal
commissions than the first year business. The Company's
international activities have experienced a shift in the mix of
business compared with the prior year. This business was
primarily mortality risk reinsurance in the first quarter of 1995
versus the single premium immediate annuity business received in
1996. Single premium immediate annuity business includes a more
traditional acquisition and insurance expense margin. Overall,
these amounts continue to fluctuate with business volume and
product mix from year to year.
Other Operating Expenses. Other operating expenses increased $2.4
million, or 36.4%, to $9.0 million in the first quarter of 1996
compared to $6.6 million for the same period in 1995. Expenses
of the U.S. operations increased $1.6 million resulting from
planned increases in operating expenses associated with the
growth of the Company. Expenses of the Canadian operations
increased $0.3 million resulting from additional expenses to
support the overall growth of business. Other international
business operating expenses increased $0.4 million which
represent operating costs in those countries and additional home
office staff. The increase in other expenses is primarily the
result of planned activities associated with pursuing new
business opportunities domestically, and international expansion
efforts. The operating expense increases are consistent with
expectations and the expense levels exhibited during the second
half of 1995 in connection with the expansion of the Company.
10
<PAGE> 11
Interest Expense. Interest expense during the first quarter of 1996
relates to the issuance of long-term debt by Reinsurance Group of America,
Incorporated on March 22, 1996. Interest costs of $0.3 million were
associated with the long-term debt issued.
Provision for Income Taxes. Income tax expense represents
approximately 36.7% of pre-tax income, compared to 37.0% for the first
quarter of 1995. The decrease is the result of the differential between
the Canadian tax rate and the U.S. tax rate coupled with the mixture of
earnings reported for the quarter. The effective tax rate of 36.7% is
representative of the Company's expected annual effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Invested assets increased by $391.2 million, or 27.8%, to $1,796.7
million at March 31, 1996 compared to $1,405.5 million at December 31, 1995.
The increase resulted from cash deposits on certain reinsurance transactions
of $179.3 million, proceeds from a Senior Note offering of $99.0 million, a
coinsurance transaction resulting in approximately $50.0 million of invested
assets being transferred to the Company during the first quarter, and
positive operating cash flows. These increases were partially offset by an
unfavorable decrease in the fair value adjustment of fixed maturities
available for sale of $26.5 million. The Company has historically generated
positive cash flows from operations, and expects to do so in the future.
At March 31, 1996, the Company's portfolio of fixed maturity securities
available for sale had net unrealized gains before tax of $26.6 million.
On March 22, 1996, Reinsurance Group of America, Incorporated completed
the sale of $100,000,000 of 7-1/4% Senior Notes in accordance with Rule 144A
of the Securities Act of 1933, as amended. Interest is payable semiannually
on April 1 and October 1 with the principal amount due April 1, 2006. The
ability of the Company to make debt principal and interest payments as well
as make dividend payments to shareholders is ultimately dependent on the
earnings and surplus of subsidiaries and the investment earnings on the
undeployed debt proceeds. The transfer of funds from the insurance
subsidiaries to Reinsurance Group of America, Incorporated is subject to
applicable insurance laws and regulations.
11
<PAGE> 12
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1
- ------
LEGAL PROCEEDINGS
- -----------------
The Company is not aware of any material litigation involving
Reinsurance Group of America, Incorporated or its subsidiaries.
ITEM 6
- ------
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------
(b) A report on Form 8-K was filed with the Securities and
Exchange Commission on April 4, 1996, regarding the sale of
$100,000,000 of Reinsurance Group of America, Incorporated
7-1/4% Senior Notes due 2006. No other reports on Form 8-K
were filed during the three months ended March 31, 1996.
12
<PAGE> 13
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Reinsurance Group of America, Incorporated
By: /s/ A. Greig Woodring
---------------------------------
A. Greig Woodring
President & Chief Executive Officer
/s/ Jack B. Lay
---------------------------------
Jack B. Lay
Executive Vice President &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
EDGAR FILING INFORMATION
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 1,162,269
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,796,748
<CASH> 14,927
<RECOVER-REINSURE> 74,211
<DEFERRED-ACQUISITION> 193,734
<TOTAL-ASSETS> 2,352,176
<POLICY-LOSSES> 1,429,908
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 222,507
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 104,349
0
0
<COMMON> 174
<OTHER-SE> 366,832
<TOTAL-LIABILITY-AND-EQUITY> 2,352,176
167,892
<INVESTMENT-INCOME> 27,875
<INVESTMENT-GAINS> 562
<OTHER-INCOME> 4,093
<BENEFITS> 143,685
<UNDERWRITING-AMORTIZATION> 11,416
<UNDERWRITING-OTHER> 19,009
<INCOME-PRETAX> 17,028
<INCOME-TAX> 6,249
<INCOME-CONTINUING> 10,779
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,536
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
