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RGA falls to $88mn Q1 loss, sees above-average mortality claim frequency

6th May 2020 - Author: Luke Gallin

Reinsurance Group of America (RGA), a global provider of life reinsurance, has reported a net loss of $88 million for the first-quarter of 2020, driven primarily by movements in embedded derivatives as a result of COVID-19-induced financial market volatility and adverse impacts on credit spreads.

Reinsurance Group of America logoA net loss of $88 million compares with net income of $170 million in the first-quarter of 2019. Adjusted operating income hit $89 million in the quarter, which represents a decline from the $167 million reported a year earlier.

In total, net premiums increased by 3% year-on-year from roughly $2.74 billion to $2.82 billion in Q1 2020, with adverse foreign currency effects of $33 million.

However, when compared with the same period last year, RGA’s investment income, excluding spread-based businesses and the value of associated derivatives, fell by 4% and the average investment yield was down 41 basis points to 4.08%, which the firm attributes to below-average variable investment income.

Anna Manning, President and Chief Executive Officer (CEO) of RGA, commented: “These are extremely challenging times for all of us, particularly for those on the front lines of the crisis. Our thoughts are with those most affected by this crisis. At RGA, we are focused on the health and well-being of our employees, and on supporting our clients and communities. Millions of families around the world rely on the financial protection that insurance companies provide in times of uncertainty. Although we don’t know how this crisis will ultimately unfold, we are part of an industry that provides support in times like these. RGA remains committed to helping our clients meet our shared responsibilities.

RMS

“Moving to first quarter results, our operating results were below our expectations, reflecting the impact of the COVID-19 virus and the turmoil in the financial markets. The net loss was primarily due to the movement in embedded derivatives, which reflected the disruption in the financial markets and the impact on credit spreads.

“The U.S. Individual Mortality business had elevated claims, attributable to an above-average frequency of claims. While cause of death and definitive COVID-19 impacts are difficult to establish at this time, we believe that some of these additional claims may have been COVID-19 related.

“The Asia Pacific Traditional segment was negatively affected by some catch-up in reporting of morbidity claims, primarily from one client. On a positive note, many of our segments/businesses performed well, including the Traditional segments in Canada and EMEA, U.S. Group, and Asia financial solutions business. Our Australia business performed better than expected and produced a modest profit. Premium growth was 3%, negatively influenced by foreign currency and some slowdown of growth in Asia given the pandemic.”

As the COVID-19 pandemic has unfolded, the impact to P&C insurers and reinsurers underwriting performance has become somewhat clearer, although remains widely uncertain.

Away from P&C lines, the results announcement from RGA provides some insight into the potential claims experience on the life insurance and reinsurance industry from the pandemic, although as noted by Manning, the exact experience also remains uncertain here. However, it’s clear that the company experienced an elevated level of mortality claims within its U.S. segment in Q1.

The U.S. and Latin America Traditional segment reported a loss of $62 million in Q1 2020, compared with a gain of $12 million a year earlier. In addition, the segment recorded an operating loss of $55 million against income of $18 million in Q1 2019. RGA attributes the losses to “unfavorable individual mortality experience due to a higher-than-expected claim count and minimal variable investment income.” Continuing to explain that these claims were concentrated in the 70 and older age group.

Within U.S. and Latin America Financial Solutions, the business reported a loss of $38 million, while adjusted operating income declined to $43 million. RGA states that the current-year results primarily reflected the impact of weak equity markets.

In both Canada Traditional and Canada Financial Solutions, RGA has reported a positive result, as was the case in EMEA Traditional and EMEA Financial Solutions. In Asia Pacific Traditional RGA has reported net income of $24 million, but notes that Asia Pacific Financial Solutions fell to a loss of $25 million.

RGA’s Corporate and Other segment also fell to a loss in the first-quarter of 2020, of $91 million. At the same time, the Corporate and Other segment’s adjusted operating result fell to a loss of $19 million.

“Despite the challenging environment, we continue to support our clients, and we executed on a number of in-force transactions, deploying $55 million of capital during the quarter. We repurchased $153 million in stock earlier in the quarter. We ended the quarter with an excess capital position of approximately $700 million.

“COVID-19 and its related effects will present challenges in terms of the potential for higher claims and increased investment credit losses. While it is premature to accurately predict the ultimate impact of this virus on RGA, we believe that we can manage through the environment, given our strong balance sheet, excess capital, ample liquidity, and an investment portfolio that is defensively positioned,” said Manning.

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