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Harsh winter and severe flu outbreak hits life reinsurer RGA in Q1

2nd May 2018 - Author: Luke Gallin

U.S. domiciled life reinsurer, Reinsurance Group of America (RGA) saw its net income fall by 31% to $100.2 million in the first-quarter of 2018, driven in part by fairly adverse mortality experience within its traditional U.S. and Latin America segment as a result of the bad flu season and particularly harsh winter in the states.

Reinsurance Group of America logoPresident and Chief Executive Officer (CEO) of RGA, Anna Manning, speaking during the firm’s Q1 2018 earnings call, described the first-quarter as a soft one for the reinsurer, stressing that given the severe flu season and tough winter in the U.S., this isn’t too much of a surprise.

Within RGA’s traditional U.S. and Latin America segment, pre-tax income fell substantially from $30 million in the first-quarter of 2017 to just $2.9 million in Q1 2018. RGA attributes this to increased claims experience in the Individual Mortality business, which was influenced by a severe influenza season, which led to a higher frequency of non-large claims.

“As we have pointed out in the past, the nature of our business is such that we can experience some volatility of claims, in both directions, in the short term. However, any volatility tends to even out over longer periods, and our diversified global platform has helped mitigate overall relative volatility in recent periods. We tend to see the highest claims in our first quarters when winter weather and influenza seasons can cause higher claims experience.

“In this quarter, the biggest source of variability was in our U.S. Individual Mortality business where we had elevated claims, influenced by a severe influenza season and a difficult winter,” said Manning, as part of the company’s Q1 2018 results statement.

Todd Larson, Senior Executive Vice President (EVP) and Chief Financial Officer (CFO) at RGA, said during the firm’s first-quarter 2018 earnings call that it would “quantify the effects of adverse mortality at roughly $40 million for the quarter.”

RGA underlines the inherent volatility in life reinsurance business, and makes clear that typically, first-quarter performance can experience variables as a result of winter weather and the flu season.

But the U.S. winter weather and flu season appears to have been particularly severe in the opening three months of 2018, and Manning explained on the earnings call that the key contributor this quarter was frequency, with both an elevation in the number of non-large claims, alongside a higher average size to those claims.

Ultimately, explained Manning, RGA is “disappointed” with the claims result, and wishes it was better. However, “given the quarter’s circumstances, we are not worried about it,” added Manning.

It’s worth noting that it wasn’t just the U.S. that felt the force of bad winter weather, with parts of Europe, including the UK, also experiencing particularly harsh winters, suggesting that life insurers and reinsurers operating outside of the U.S. might also note some adverse mortality experience during the opening three months of the year.

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