Reinsurance Group of America, Incorporated and Subsidiaries Quarterly Report (Form 10-Q) for the Quarter Ended June 30, 2024

Overview

RGA is a leading global provider of life reinsurance and financial solutions, with $3.8 trillion of life reinsurance in force and assets of $109.9 billion as of June 30, 2024. The company’s main business lines are Traditional Reinsurance, which includes individual and group life, health, disability, and critical illness reinsurance, and Financial Solutions, which includes longevity reinsurance, asset-intensive reinsurance, and capital solutions.

RGA generates revenue primarily from renewal premiums, new business premiums, fee income, and investment income. For its Traditional business, profitability depends on the volume and amount of claims incurred and the ability to price risks accurately. For longevity business, profitability depends on the lifespan of the underlying contract holders and investment performance. The company also generates profits on investment spreads and fees from financial reinsurance transactions.

Segment Performance

RGA has geographic-based and business-based operational segments. The U.S. and Latin America operations are the largest, consisting of Traditional and Financial Solutions businesses. The Canada operations are primarily engaged in Traditional reinsurance, with a smaller Financial Solutions segment. The Europe, Middle East and Africa (EMEA) operations also have Traditional and Financial Solutions segments. The Asia Pacific operations include Traditional and Financial Solutions business.

The key drivers of performance for each segment include:

• U.S. and Latin America Traditional: Favorable impacts of in-force management actions and higher net investment income.
• U.S. and Latin America Financial Solutions: Volatility due to changes in fair value of derivatives, market risk benefits, and non-economic changes in insurance liabilities. Increases in investment related losses and decline in invested asset base.
• Canada Traditional: Favorable experience on group business, partially offset by lower investment gains and future policy remeasurement losses.
• EMEA Traditional: Unfavorable claims experience, partially offset by increased net premiums.
• EMEA Financial Solutions: Increased net investment income and growth in closed longevity business, offset by investment losses.
• Asia Pacific Financial Solutions: Increased investment losses.

Financial Performance

For the three months ended June 30, 2024, net income was $204 million, a slight decrease from $207 million in the prior year period. The decrease was primarily due to higher investment related losses and unfavorable claims experience, partially offset by higher net investment income.

For the six months ended June 30, 2024, net income was $416 million, down from $460 million in the prior year period. The decrease was primarily due to unfavorable results in the U.S. Financial Solutions business from a non-economic loss on a pension risk transfer transaction, as well as higher investment related losses.

Key Drivers of Financial Performance

Premiums and Business Growth:

• Premiums increased due to single premium pension risk transfer transactions, as well as organic growth on existing treaties and new business production.
• Consolidated assumed life reinsurance in force increased to $3,767.7 billion as of June 30, 2024, from $3,479.6 billion a year earlier.

Net Investment Income and Investment Related Gains/Losses:

• Net investment income increased due to a higher invested asset base and higher interest rates on new investments, partially offset by lower variable investment income.
• Investment related losses increased due to portfolio repositioning, losses on derivatives, and higher impairments, partially offset by gains on embedded derivatives.

Impact of Derivatives, Market Risk Benefits, and Non-Economic Changes:

• Changes in fair value of embedded derivatives, market risk benefits, and non-economic changes in insurance liabilities, such as initial losses on pension risk transfer transactions, had a significant impact on earnings.

Liquidity and Capital Resources

RGA believes its sources of liquidity, including cash flows from operations, are sufficient to cover potential claims payments and other cash needs. The company has multiple liquidity alternatives available, including the sale of invested assets, borrowings, and issuing debt or equity.

RGA, the parent holding company, relies on dividends, interest income, and capital contributions from subsidiaries as its main sources of liquidity. The company has maintained a capital structure that supports its credit ratings and provides financial flexibility to its subsidiaries.

RGA’s debt agreements contain financial covenants related to leverage, net worth, and other requirements. As of June 30, 2024, RGA was in compliance with all debt covenants.

The company actively manages its cash and invested assets to balance quality, diversification, asset/liability matching, liquidity, and investment return. The investment portfolio is primarily composed of fixed maturity securities, with 94.4% investment grade as of June 30, 2024.

Outlook

RGA believes its current capital base is adequate to support its business, though it continues to monitor new business opportunities and associated capital needs. The company’s profitability remains most sensitive to mortality and morbidity risks, rather than interest rate or equity market movements.

Overall, RGA’s diversified business model, disciplined risk management, and strong liquidity position it well to navigate the current market environment and support future growth. However, the volatility in the Financial Solutions segment, particularly related to non-economic changes in liabilities, remains a key area of focus for the company.