Reinsurance Group of America, Incorporated (“RGA”) is an insurance
holding company that was formed on December 31, 1992. The consolidated financial
statements herein include the assets, liabilities, and results of operations
of RGA and its subsidiaries, all of which are wholly owned (collectively, the
“Company”).
The Company has grown to become a leading global provider of traditional and
non-traditional life and health reinsurance with operations in the United States,
Latin America, Canada, Europe, Africa, Asia and Australia. Reinsurance is an
arrangement under which an insurance company, the “reinsurer,” agrees
to indemnify another insurance company, the “ceding company,” for
all or a portion of the insurance and/or investment risks underwritten by the
ceding company. Reinsurance is designed to (i) reduce the net amount at risk
on individual risks, thereby enabling the ceding company to increase the volume
of business it can underwrite, as well as increase the maximum risk it can underwrite
on a single risk; (ii) stabilize operating results by leveling fluctuations
in the ceding company’s loss experience; (iii) assist the ceding company
in meeting applicable regulatory requirements; and (iv) enhance the ceding company’s
financial strength and surplus position.
The Company has geographic-based and business-based operational segments: U.S.
and Latin America; Canada; Europe, Middle East and Africa; Asia Pacific; and
Corporate and Other. Geographic-based operations are further segmented into
traditional and non-traditional businesses. The Company’s segments primarily
write reinsurance business that is wholly or partially retained in one or more
of RGA’s reinsurance subsidiaries.
RGA is an insurance holding company, the principal assets of which consist
of the common stock of Reinsurance Company of Missouri, Incorporated (“RCM”),
RGA Americas Reinsurance Company, Ltd. (“RGA Americas”), RGA Reinsurance
Company (Barbados) Ltd. (“RGA Barbados”), RGA International Reinsurance
Company Limited (“RGA International”) and RGA Reinsurance Company
of Australia Limited ("RGA Australia") as well as several other subsidiaries,
all of which are wholly owned. Potential sources of funds for RGA to pay stockholder
dividends and to fund debt service obligations are dividends and interest paid
to RGA by its subsidiaries, securities maintained in its investment portfolio,
and proceeds from securities offerings and borrowings. RCM’s primary sources
of funds are dividend distributions paid by its subsidiary, RGA Reinsurance
Company (“RGA Reinsurance”), whose principal source of funds is
derived from current operations. RGA Americas’ primary sources of funds
are dividend distributions paid by its subsidiaries, RGA Life Reinsurance Company
of Canada (“RGA Canada”), RGA Atlantic Reinsurance Company Ltd.
(“RGA Atlantic”) and RGA Reinsurance Company of South Africa, Limited
("RGA South Africa"), whose principal source of funds is derived from
current operations. Dividends paid by RGA’s reinsurance subsidiaries are
subject to regulatory restrictions of the respective governing bodies where
each reinsurance subsidiary is domiciled.
Traditional Reinsurance
Traditional reinsurance includes individual and group life and health, disability,
and critical illness reinsurance. Life reinsurance primarily refers to reinsurance
of individual or group-issued term, whole life, universal life, and joint and
last survivor insurance policies. Health and disability reinsurance primarily
refers to reinsurance of individual or group health policies. Critical illness
reinsurance provides a benefit in the event of the diagnosis of a pre-defined
critical illness.
Traditional reinsurance is written on a facultative or automatic treaty basis.
Facultative reinsurance is individually underwritten by the reinsurer for each
policy to be reinsured, with the pricing and other terms established based upon
rates negotiated in advance. Facultative reinsurance is normally purchased by
ceding companies for medically impaired lives, unusual risks, or liabilities
in excess of the binding limits specified in their automatic reinsurance treaties.
An automatic reinsurance treaty provides that the ceding company will cede risks
to a reinsurer on specified blocks of policies where the underlying policies
meet the ceding company’s underwriting criteria. In contrast to facultative
reinsurance, the reinsurer does not approve each individual policy being reinsured.
Automatic reinsurance treaties generally provide that the reinsurer will be
liable for a portion of the risk associated with the specified policies written
by the ceding company. Automatic reinsurance treaties specify the ceding company’s
binding limit, which is the maximum amount of risk on a given life that can
be ceded automatically to the reinsurer and that the reinsurer must accept.
The binding limit may be stated either as a multiple of the ceding company’s
retention or as a stated dollar amount.
Facultative and automatic reinsurance may be written as yearly renewable term,
coinsurance, modified coinsurance or coinsurance with funds withheld. Under
a yearly renewable term treaty, the reinsurer assumes primarily the mortality
or morbidity risk. Under a coinsurance arrangement, depending upon the terms
of the contract, the reinsurer may share in the risk of loss due to mortality
or morbidity, lapses, and the investment risk, if any, inherent in the underlying
policy. Modified coinsurance and coinsurance with funds withheld differs from
coinsurance in that the assets supporting the reserves are retained by the ceding
company.
Generally, the amount of life and health reinsurance ceded is stated on an excess
or a quota share basis. Reinsurance on an excess basis covers amounts in excess
of an agreed-upon retention limit. Retention limits vary by ceding company and
also may vary by the age or underwriting classification of the insured, the
product, and other factors. Under quota share reinsurance, the ceding company
states its retention in terms of a fixed percentage of the risk with the remainder
to be ceded to one or more reinsurers up to the maximum binding limit.
Reinsurance agreements, whether facultative or automatic, may include recapture
rights, which permit the ceding company to reassume all or a portion of the
risk formerly ceded to the reinsurer after an agreed-upon period of time (generally
10 years) or in some cases due to changes in the financial condition or ratings
of the reinsurer. Recapture of business previously ceded does not affect premiums
ceded prior to the recapture of such business, but would reduce premiums in
subsequent periods. The potential adverse effects of recapture rights are mitigated
by the following factors: (i) recapture rights vary by treaty and the risk of
recapture is a factor that is considered when pricing a reinsurance agreement;
(ii) ceding companies generally may exercise their recapture rights only to
the extent they have increased their retention limits for the reinsured policies;
and (iii) ceding companies generally must recapture all of the policies eligible
for recapture under the agreement in a particular year if any are recaptured
(which prevents a ceding company from recapturing only the most profitable policies).
In addition, when a ceding company recaptures reinsured policies, the reinsurer
releases the reserves it maintained to support the recaptured portion of the
policies.
Non-Traditional Reinsurance
Non-traditional reinsurance includes longevity reinsurance, asset-intensive
reinsurance, and financial reinsurance.
Longevity Reinsurance
In many countries, companies are increasingly interested in reducing their exposure
to longevity risk related to the retirement benefits promised to staff. This
concern comes from both the absolute size of the risk and also through the volatility
that changes in life expectancy can have on their reported earnings. In addition,
insurance companies that offer lifetime annuities are seeking ways to manage
their current exposure, while also recognizing the potential to take on more
risk from employers and individuals.
The Company has entered into transactions on existing longevity business for
clients in Europe and Canada. These have been arrangements with traditional
insurance companies, as well as customized arrangements for banks dealing with
pension schemes. In addition, the Company has acquired a closed block of longevity
business in the U.S.
Asset-Intensive Reinsurance
Asset-intensive reinsurance refers to the full-risk coinsurance of annuities
or reinsurance that has a significant investment component. Asset-intensive
reinsurance allows the Company’s clients to take advantage of growth opportunities
that might otherwise not be available due to restrictions on available capital
or concerns about the size of the investment risk on their balance sheets.
An ongoing partnership with clients is important with asset-intensive reinsurance
because of the active management involved in this type of reinsurance. This
active management includes investment decisions, investment and claims management,
and the determination of non-guaranteed elements. Some examples of the reinsurance
offered by asset-intensive reinsurance are: fixed deferred annuities, indexed
annuities, unit-linked variable annuities, universal life corporate-owned life
insurance and bank-owned life insurance, unit-linked variable life, immediate/payout
annuities, whole life, disabled life reserves, and extended term insurance.
Financial Reinsurance
Financial reinsurance primarily involves assisting ceding companies in meeting
applicable regulatory requirements by enhancing the ceding companies’
financial strength and regulatory surplus position. Financial reinsurance transactions
do not qualify as reinsurance under U.S. generally accepted accounting principles
(“GAAP”), due to the low-risk nature of the transactions. These
transactions are reported in accordance with deposit accounting guidelines.
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