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UNITED STATES
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, 2004
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)
1370 TIMBERLAKE MANOR PARKWAY
CHESTERFIELD, MISSOURI 63017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(636) 736-7439
(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
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES [X] NO ____
COMMON STOCK OUTSTANDING ($.01 PAR VALUE) AS OF APRIL 30, 2004: 62,248,142
SHARES
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I - FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2004 and December 31, 2003 3
Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 2004 and 2003 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6-10
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-24
3 Quantitative and Qualitative Disclosures About Market Risk 24
4 Controls and Procedures 24
PART II - OTHER INFORMATION
1 Legal Proceedings 25
6 Exhibits and Reports on Form 8-K 25
Signatures 26
Index to Exhibits 27
2
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2004 2003
------------ ------------
(Dollars in thousands)
ASSETS
Fixed maturity securities:
Available-for-sale at fair value (amortized cost of $4,484,404 and
$4,298,597 at March 31, 2004 and December 31, 2003, respectively) $ 4,854,473 $ 4,575,735
Mortgage loans on real estate 504,097 479,312
Policy loans 903,515 902,857
Funds withheld at interest 2,862,082 2,717,278
Short-term investments 21,352 28,917
Other invested assets 206,348 179,320
------------ ------------
Total investments 9,351,867 8,883,419
Cash and cash equivalents 255,851 84,586
Accrued investment income 63,272 47,961
Premiums receivable 445,185 412,413
Reinsurance ceded receivables 397,269 463,557
Deferred policy acquisition costs 1,844,639 1,757,096
Other reinsurance balances 275,310 387,108
Other assets 71,669 77,234
------------ ------------
Total assets $ 12,705,062 $ 12,113,374
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits $ 3,570,768 $ 3,550,156
Interest sensitive contract liabilities 4,321,488 4,170,591
Other policy claims and benefits 1,209,619 1,091,038
Other reinsurance balances 282,239 267,706
Deferred income taxes 486,501 438,973
Other liabilities 211,098 90,749
Long-term debt 404,115 398,146
Company-obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely junior subordinated debentures of the Company 158,322 158,292
------------ ------------
Total liabilities 10,644,150 10,165,651
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; 75,000,000 shares authorized,
63,128,273 shares issued at March 31, 2004 and December 31, 2003) 631 631
Warrants 66,915 66,915
Additional paid-in-capital 1,043,256 1,042,444
Retained earnings 699,508 641,502
Accumulated other comprehensive income:
Accumulated currency translation adjustment, net of income taxes 48,112 53,601
Unrealized appreciation of securities, net of income taxes 228,123 170,658
------------ ------------
Total stockholders' equity before treasury stock 2,086,545 1,975,751
Less treasury shares held of 883,067 and 967,927 at cost at
March 31, 2004 and December 31, 2003, respectively (25,633) (28,028)
------------ ------------
Total stockholders' equity 2,060,912 1,947,723
------------ ------------
Total liabilities and stockholders' equity $ 12,705,062 $ 12,113,374
============ ============
See accompanying notes to condensed consolidated financial statements
(unaudited).
3
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended March 31,
---------------------------------------------
2004 2003
------------------ ------------------
(Dollars in thousands, except per share data)
REVENUES:
Net premiums $ 813,874 $ 545,215
Investment income, net of related expenses 133,560 107,145
Realized investment gains (losses), net 18,416 (9,828)
Change in value of embedded derivatives (net of amounts
allocable to deferred acquisition costs of $4,200 in 2004) (2,678) -
Other revenues 11,850 11,017
------------------ ------------------
Total revenues 975,022 653,549
BENEFITS AND EXPENSES:
Claims and other policy benefits 647,054 423,605
Interest credited 47,018 40,796
Policy acquisition costs and other insurance expenses
(excluding $4,200 allocated to embedded derivatives in 2004) 143,068 104,581
Other operating expenses 33,529 25,755
Interest expense 9,538 8,959
------------------ ------------------
Total benefits and expenses 880,207 603,696
Income from continuing operations before
income taxes 94,815 49,853
Provision for income taxes 31,821 16,693
------------------ ------------------
Income from continuing operations 62,994 33,160
Discontinued operations:
Loss from discontinued accident and health
operations, net of income taxes (894) (418)
------------------ ------------------
Income before cumulative effect of change in
accounting principle 62,100 32,742
Cumulative effect of change in accounting principle,
net of income taxes (361) -
------------------ ------------------
Net income $ 61,739 $ 32,742
================== ==================
BASIC EARNINGS PER SHARE:
Income from continuing operations $ 1.01 $ 0.67
Discontinued operations (0.01) (0.01)
Cumulative effect of change in accounting principal (0.01) -
------------------ ------------------
Net income $ 0.99 $ 0.66
================== ==================
DILUTED EARNINGS PER SHARE:
Income from continuing operations $ 1.00 $ 0.67
Discontinued operations (0.01) (0.01)
Cumulative effect of change in accounting principal (0.01) -
------------------ ------------------
Net income $ 0.98 $ 0.66
================== ==================
DIVIDENDS DECLARED PER SHARE $ 0.06 $ 0.06
================== ==================
See accompanying notes to condensed consolidated financial statements
(unaudited).
4
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
March 31,
----------------------------
2004 2003
------------ ------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 61,739 $ 32,742
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in:
Accrued investment income (15,266) (20,078)
Premiums receivable (30,878) (61,001)
Deferred policy acquisition costs (81,010) (71,237)
Reinsurance ceded balances 66,288 29,237
Future policy benefits, other policy claims and benefits, and
other reinsurance balances 263,242 175,377
Deferred income taxes 20,298 11,756
Other assets and other liabilities, net 125,769 37,487
Amortization of net investment discounts and other (8,760) (9,284)
Realized investment (gains) losses, net (18,416) 9,828
Other, net (7,193) (3,755)
------------ ------------
Net cash provided by operating activities 375,813 131,072
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of fixed maturity securities-available for sale 373,726 573,635
Maturities of fixed maturity securities - available for sale 8,152 4,910
Purchases of fixed maturity securities - available for sale (555,250) (708,315)
Sales of mortgage loans 13,927 -
Cash invested in mortgage loans of real estate (41,276) (39,700)
Cash invested in policy loans (658) (3)
Cash invested in funds withheld at interest (29,165) (23,786)
Principal payments on mortgage loans on real estate 4,367 2,651
Change in short-term investments and other invested assets (16,182) (13,992)
------------ ------------
Net cash used in investing activities (242,359) (204,600)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders (3,733) (2,967)
Borrowings under credit agreements 4,600 16,331
Exercise of stock options 3,207 2,087
Excess deposits on universal life and other
investment type policies and contracts 32,905 90,231
------------ ------------
Net cash provided by financing activities 36,979 105,682
Effect of exchange rate changes 832 917
------------ ------------
Change in cash and cash equivalents 171,265 33,071
Cash and cash equivalents, beginning of period 84,586 88,101
------------ ------------
Cash and cash equivalents, end of period $ 255,851 $ 121,172
============ ============
Supplementary disclosure of cash flow information:
Amount of interest paid $ 7,698 $ 7,134
Amount of income taxes paid $ 18,008 $ 1,420
See accompanying notes to condensed consolidated financial statements
(unaudited).
5
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Reinsurance Group of America, Incorporated ("RGA") and subsidiaries
(collectively, the "Company") have been prepared in conformity with accounting
principles generally accepted in the United States of America 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 accounting principles generally accepted in the United
States of America 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-month period ended March 31, 2004 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2004. These
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 2003 Annual Report on Form 10-K ("2003 Annual Report")
filed with the Securities and Exchange Commission on March 12, 2004.
The accompanying unaudited condensed consolidated financial statements include
the accounts of Reinsurance Group of America, Incorporated and its subsidiaries.
All material intercompany accounts and transactions have been eliminated. The
Company has reclassified the presentation of certain prior period information to
conform to the 2004 presentation.
Prior to January 1, 2003, the Company applied Accounting Principles Board
("APB") Opinion No. 25 in accounting for its stock plans and, accordingly, no
compensation cost was recognized for its stock options in the financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under Statement of Financial Accounting
Standards ("SFAS") No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below. The effects of
applying SFAS No. 123 may not be representative of the effects on reported net
income for future years.
THREE MONTHS ENDED
MARCH 31,
2004 2003
------------ ------------
Net income as reported $ 61,739 $ 32,742
Add compensation expense included in net income, net of
income taxes 534 418
Deduct total fair value of compensation expense for all
awards, net of income taxes 1,156 907
------------ ------------
Pro forma net income $ 61,117 $ 32,253
Net income per share:
As reported - basic $ 0.99 $ 0.66
Pro forma - basic $ 0.98 $ 0.65
As reported - diluted $ 0.98 $ 0.66
Pro forma - diluted $ 0.97 $ 0.65
============ ============
6
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share on income from continuing operations (in thousands except per share
information):
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2004 2003
------------ ------------
Earnings:
Income from continuing operations (numerator for basic
and diluted calculations) $ 62,994 $ 33,160
Shares:
Weighted average outstanding shares (denominator for
basic calculation) 62,210 49,551
Equivalent shares from outstanding stock options
(denominator for diluted calculation) 498 180
------------ ------------
Denominator for diluted calculation 62,708 49,731
Earnings per share:
Basic $ 1.01 $ 0.67
Diluted $ 1.00 $ 0.67
============ ============
The calculation of equivalent shares from outstanding stock options does not
include the impact of options having a strike price that exceeds the average
stock price for the earnings period, as the result would be antidilutive. The
calculation of equivalent shares also excludes the impact of outstanding
performance contingent shares as the conditions necessary for their issuance
have not been satisfied as of the end of the reporting period. For the
three-month period ended March 31, 2004, all outstanding stock options were
included in the calculation of common equivalent shares, while approximately 0.1
million performance contingent shares were excluded from the calculation. For
the three-month period ended March 31, 2003, approximately 2.1 million of
antidilutive outstanding stock options were not included in the calculation of
common equivalent shares. Diluted earnings per share exclude the antidilutive
effect of 5.6 million shares that would be issued upon exercise of outstanding
warrants to purchase Company common stock, as the Company could repurchase more
shares than it could issue with the exercise proceeds. The warrants become
dilutive once the Company's average stock price during a reporting period
exceeds $39.98 per share.
3. COMPREHENSIVE INCOME
The following schedule reflects the change in accumulated other comprehensive
income for the three-month periods ended March 31, 2004 and 2003 (dollars in
thousands):
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2004 2003
------------ ------------
Net income $ 61,739 $ 32,742
Accumulated other comprehensive
income (expense), net of income tax:
Unrealized gains (losses), net of
reclassification adjustment for gains
(losses) included in net income. 57,465 (15,743)
Foreign currency items (5,489) 9,701
------------ ------------
Comprehensive income $ 113,715 $ 26,700
============ ============
4. SEGMENT INFORMATION
The accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies in Note 2 of the 2003 Annual Report.
The Company measures segment performance primarily based on
7
profit or loss from operations before income taxes. There are no intersegment
reinsurance transactions and the Company does not have any material long-lived
assets. Investment income is allocated to the segments based upon average assets
and related capital levels deemed appropriate to support the segment business
volumes.
Information related to total revenues and income (loss) from continuing
operations before income taxes for each reportable segment are summarized below
(dollars in thousands).
INCOME (LOSS) FROM CONTINUING
TOTAL REVENUES OPERATIONS BEFORE INCOME TAXES
---------------------------- ------------------------------
THREE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31,
2004 2003 2004 2003
-------- -------- ------- -------
U.S. $646,364 $450,806 $70,247 $42,638
Canada 85,475 68,024 15,920 10,627
Europe & South Africa 122,344 85,366 6,260 2,409
Asia Pacific 108,256 44,950 6,797 1,368
Corporate and Other 12,583 4,403 (4,409) (7,189)
-------- -------- ------- -------
Total $975,022 $653,549 $94,815 $49,853
======== ======== ======= =======
Europe & South Africa and Asia Pacific assets increased approximately 17.1% and
16.2%, respectively, from the amounts disclosed in Note 17 of the 2003 Annual
Report, primarily due to the continued growth in these segments.
5. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is currently a party to various litigation and arbitrations that
involve medical reinsurance arrangements, personal accident business, and
aviation bodily injury carve-out business. As of March 31, 2004, the ceding
companies involved in these disputes have raised claims, or established reserves
that may result in claims, that are $96.1 million in excess of the amounts held
in reserve by the Company. The Company generally has little information
regarding any reserves established by the ceding companies, and it is possible
that any such reserves could be increased in the future. The Company believes it
has substantial defenses upon which to contest these claims, including but not
limited to misrepresentation and breach of contract by direct and indirect
ceding companies. In addition, the Company is in the process of auditing ceding
companies that have indicated that they anticipate asserting claims in the
future against the Company that are $8.4 million in excess of the amounts held
in reserve by the Company. Depending upon the audit findings in these cases,
they could result in litigation or arbitrations in the future. See Note 21,
"Discontinued Operations," in the Company's 2003 Annual Report for more
information. Additionally, from time to time, the Company is subject to
litigation and arbitration related to its life reinsurance business and to
employment-related matters in the normal course of its business. While it is not
feasible to predict or determine the ultimate outcome of the pending litigation
or arbitrations or provide reasonable ranges of potential losses, it is the
opinion of management, after consultation with counsel, that their outcomes,
after consideration of the provisions made in the Company's consolidated
financial statements, would not have a material adverse effect on its
consolidated financial position.
As discussed in the Company's Form 10-K for the period ending December 31, 2003,
certain regulations were pending relating to permanently disabled participants
of the privatized pension plans administered by Administradoras de Fondos de
Jubilaciones y Pensiones ("AFJPs"). Recently, the Argentine government enacted
those regulations. The new regulations require permanently disabled AFJP plan
participants to elect a programmed withdrawal or an annuity with respect to
deferred disability claims at a time when the AFJP fund unit values are
significantly inflated. The new regulations are expected to accelerate permanent
disability payments from reinsurers; particularly with respect to plan
participants that elect programmed withdrawal. The Company cannot predict the
percentage of plan participants that will elect programmed withdrawal as opposed
to an annuity. Also, as discussed in the Company's Form 10-K, the Company had
placed the Argentine Government on notice of its intent to file an arbitration
with respect to alleged violations of the Treaty on Encouragement and Reciprocal
Protection of Investments, between the Argentine Republic and the United States
of America, dated November 14, 1991 (the "Treaty"). On March 24, 2004, RGA
Reinsurance filed a request for arbitration of its dispute relating to these
alleged violations pursuant to the Washington Convention of 1965 on the
Settlement of Investment Disputes under the auspices of the International Centre
for Settlement of Investment Disputes of the World Bank.
8
The Company has obtained letters of credit in favor of various affiliated and
unaffiliated insurance companies from which the Company assumes business. This
allows the ceding company to take statutory reserve credits. The letters of
credit issued by banks represent a guarantee of performance under the
reinsurance agreements. At March 31, 2004, there were approximately $39.7
million of outstanding letters of credit in favor of third-party entities.
Additionally, the Company utilizes letters of credit to secure reserve credits
when it retrocedes business to its offshore subsidiaries, including RGA Americas
Reinsurance Company, Ltd. and RGA Reinsurance Company (Barbados) Ltd. As of
March 31, 2004, $292.3 million in letters of credit from various banks were
outstanding between the various subsidiaries of the Company. Fees associated
with letters of credit are not fixed for periods in excess of one year and are
based on the Company's ratings and the general availability of these instruments
in the marketplace.
RGA has issued guarantees of its subsidiaries' performance for the payment of
amounts due under certain credit facilities and reinsurance treaties, whereby if
a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries
will make a payment to fulfill the obligation. Treaty guarantees are granted to
ceding companies in order to provide them additional security, particularly in
cases where RGA's subsidiary is relatively new, unrated, or not of a significant
size, relative to the ceding company. Liabilities supported by the treaty
guarantees, before consideration for any legally offsetting amounts due from the
guaranteed party, totaled $198.4 million as of March 31, 2004 and are reflected
on the Company's consolidated balance sheet as future policy benefits.
Guarantees related to credit facilities provide additional security to third
party banks should a subsidiary fail to make principal and/or interest payments
when due. As of March 31, 2004, RGA's exposure related to credit facility
guarantees was $54.5 million, the maximum potential amount under current
facility terms.
6. EMPLOYEE BENEFIT PLANS
The components of net periodic benefit costs were as follows:
March 31,
---------------------------------------
(in thousands) Pension Benefits Other Benefits
------------------ ------------------
2004 2003 2004 2003
------- -------- -------- -------
DETERMINATION OF NET PERIODIC BENEFIT COST:
Service cost $ 442 $ 368 $ 94 $ 78
Interest cost 316 263 91 76
Expected rate of return on plan assets (192) (161) -- --
Amortization of prior service cost 9 8 -- --
Amortization of prior actuarial loss 42 35 18 15
------- -------- -------- -------
Net periodic benefit cost $ 617 $ 513 $ 203 $ 169
======= ======== ======== =======
The Company expects to contribute $2.9 million in pension benefits and $0.1
million in other benefits during 2004. Employer contributions for the first
quarter of 2004 are estimated to be approximately $9,000. Revised estimated
employer contributions to be paid to fund the plan during 2004 include the
contributions already made in 2004 (includes discretionary contributions as well
as those required by funding regulations or laws).
7. NEW ACCOUNTING STANDARDS
In July 2003, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts." SOP
03-1 provides guidance on separate account presentation and valuation, the
accounting for sales inducements and the classification and valuation of
long-duration contract liabilities. The Company adopted the provisions of SOP
03-1 on January 1, 2004, recording a charge of $361 thousand, net of income
taxes.
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"),
an interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," which requires the consolidation by a business enterprise
of variable interest entities if the business enterprise is the primary
beneficiary. FIN 46 was effective January 31, 2003, for the Company with respect
to interests in variable interest entities obtained after that date. With
respect to interests in variable interest entities existing prior to February 1,
2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), which
9
extended the effective date of FIN 46 to the period ending March 31, 2004. The
Company adopted the provisions of FIN 46 as of March 31, 2004 and is not
required to consolidate any material interests in variable interest entities.
8. SIGNIFICANT TRANSACTION
During December 2003, the Company completed a large coinsurance agreement with
Allianz Life Insurance Company of North America ("Allianz Life"). Under this
agreement, RGA Reinsurance assumed the traditional life reinsurance business of
Allianz Life, including yearly renewable term reinsurance and coinsurance of
term policies. The business assumed does not include any accident and health
risk, annuities or related guaranteed minimum death benefits or guaranteed
minimum income benefits. This transaction adds additional scale to the Company's
U.S. traditional business, but does not significantly add to its client base
since most of the underlying ceding companies are already clients. The Company
has agreed to use commercially reasonable efforts to novate the underlying
treaties from Allianz Life to RGA Reinsurance. Novation results in the
underlying client companies reinsuring the business directly to RGA Reinsurance
versus passing through Allianz Life. The profitability of the business is not
dependent on novation. The transaction was effective retroactive to July 1,
2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Our primary business is life reinsurance, which involves reinsuring life
insurance policies that are often in force for the remaining lifetime of the
underlying individuals insured, with premiums earned typically over a period of
10 to 30 years. Each year, however, a portion of the business under existing
treaties terminates due to, among other things, lapses or surrenders of
underlying policies, deaths of policyholders, and the exercise of recapture
options by ceding companies.
We derive revenues primarily from renewal premiums from existing reinsurance
treaties, new business premiums from existing or new reinsurance treaties,
income earned on invested assets, and fees earned from financial reinsurance
transactions. We believe that industry trends have not materially changed from
those discussed in our 2003 Annual Report. Further, critical accounting policies
are substantially the same as those disclosed in our 2003 Annual Report.
Our profitability primarily depends on the volume and amount of death claims
incurred and our ability to adequately price the risks we assume. While death
claims are reasonably predictable over a period of many years, claims become
less predictable over shorter periods and are subject to significant fluctuation
from quarter to quarter and year to year. Effective July 1, 2003, we increased
the maximum amount of coverage that we retain per life from $4 million to $6
million. This increase does not affect business written prior to July 1, 2003.
Claims in excess of this retention amount are retroceded to retrocessionaires;
however, we remain fully liable to the ceding company, our customer, for the
entire amount of risk we assume. The increase in our retention limit from $4
million to $6 million reduces the amount of premiums we pay to our
retrocessionaires, but increases the maximum impact a single death claim can
have on our results and therefore may result in additional volatility to our
results.
Our U.S. operations provide traditional life, asset-intensive, and financial
reinsurance products. Canada operations provide insurers with reinsurance of
traditional life products as well as reinsurance of critical illness products.
Asia Pacific operations provide primarily traditional life and critical illness
reinsurance and, to a lesser extent, financial reinsurance. Europe & South
Africa operations include traditional life reinsurance and critical illness
business from Europe and South Africa, in addition to other markets we are
developing. Corporate and Other segment results include the corporate investment
activity, general corporate expenses, interest expense of RGA, Argentine
privatized pension business and the provision for income tax expense (benefit).
Our discontinued accident and health operations are not reflected in the
continuing operations of the Company. The Company measures segment performance
based on income or loss from continuing operations before income taxes.
10
RESULTS OF OPERATIONS
Consolidated income from continuing operations before income taxes for the first
quarter of 2004 increased $45.0 million, or 90.2%, compared to the prior-year
period, primarily due to higher revenue levels and net capital gains on
investment transactions during the first quarter of 2004. This increase was a
result of our large coinsurance agreement with Allianz Life Insurance Company of
North America ("Allianz Life") completed in December 2003, as well as continued
growth in life reinsurance premiums in all of our operating segments.
Consolidated premiums from continuing operations increased $268.7 million, or
49.3%, during the first quarter of 2004 compared to 2003. The Allianz Life
transaction represented $118.5 million of this increase. We expect the Allianz
Life transaction to generate approximately $450 million to $500 million of
premiums during 2004.
Consolidated investment income, net of related expenses, increased 24.7% during
the first quarter of 2004, primarily due to a larger invested asset base.
Invested assets as of March 31, 2004 totaled $9.4 billion, a 32.2% increase over
March 31, 2003. While our invested asset base has grown significantly since
March 31, 2003, the average yield earned on investments excluding funds withheld
decreased from 6.67% during the first quarter of 2003 to 5.83% for the first
quarter of 2004. The decrease in yield is primarily the result of a lower
interest rate environment during 2003 and the first quarter of 2004. The average
yield will vary from quarter to quarter and year to year depending on a number
of variables, including the prevailing interest rate environment and changes in
the mix of our underlying investments. Investment income is allocated to the
segments based upon average assets and related capital levels deemed appropriate
to support the segment business volumes.
Effective tax rates on a consolidated basis for the first quarter of 2004 and
2003 were 33.6% and 33.5%, respectively.
Further discussion and analysis of the results for the first quarter of 2004
compared to the first quarter of 2003 are presented by segment. Certain
prior-year amounts have been reclassified to conform to the current-year
presentation. References to income before income taxes exclude the effects of
discontinued operations and the cumulative effect of changes in accounting
principles.
11
U.S. OPERATIONS
U.S. operations consist of two major sub-segments: Traditional and
Non-Traditional. The Traditional sub-segment primarily specializes in
mortality-risk reinsurance. The Non-traditional category consists of
Asset-Intensive and Financial Reinsurance.
FOR THE THREE MONTHS ENDED MARCH 31, 2004 (IN THOUSANDS)
NON-TRADITIONAL
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
------------- ------------ --------------- --------------
REVENUES:
Net premiums $ 531,211 $ 1,182 $ -- $ 532,393
Investment income, net of related expenses 54,053 45,467 43 99,563
Realized investment gains, net 7,558 144 -- 7,702
Change in value of embedded derivatives (net of
amounts allocable to deferred acquisition
costs of $4,200) -- (2,678) -- (2,678)
Other revenues 1,334 1,670 6,380 9,384
------------- ------------ --------------- --------------
Total revenues 594,156 45,785 6,423 646,364
BENEFITS AND EXPENSES:
Claims and other policy benefits 430,891 (1,021) -- 429,870
Interest credited 12,078 34,494 -- 46,572
Policy acquisition costs and other insurance
expenses (excluding $4,200 allocated to
embedded derivatives) 75,431 7,645 2,294 85,370
Other operating expenses 11,724 1,159 1,422 14,305
------------- ------------ --------------- --------------
Total benefits and expenses 530,124 42,277 3,716 576,117
Income before income taxes $ 64,032 $ 3,508 $ 2,707 $ 70,247
============= ============ =============== ==============
FOR THE THREE MONTHS ENDED MARCH 31, 2003 (IN THOUSANDS)
NON-TRADITIONAL
ASSET- FINANCIAL TOTAL
TRADITIONAL INTENSIVE REINSURANCE U.S.
------------- ------------ --------------- --------------
REVENUES:
Net premiums $ 368,807 $ 1,098 $ - $ 369,905
Investment income, net of related expenses 42,701 36,334 - 79,035
Realized investment losses, net (5,244) (2,861) - (8,105)
Other revenues 1,813 1,247 6,911 9,971
------------- ------------ --------------- --------------
Total revenues 408,077 35,818 6,911 450,806
BENEFITS AND EXPENSES:
Claims and other policy benefits 293,726 1,619 - 295,345
Interest credited 15,319 25,141 - 40,460
Policy acquisition costs and other insurance
expenses 50,805 8,028 2,520 61,353
Other operating expenses 8,455 1,112 1,443 11,010
------------- ------------ --------------- --------------
Total benefits and expenses 368,305 35,900 3,963 408,168
Income (loss) before income taxes $ 39,772 $ (82) $ 2,948 $ 42,638
============= ============ =============== ==============
Income before income taxes for the U.S. Operations segment totaled $70.2 million
for the first quarter of 2004, an increase of 64.8% from the comparable
prior-year period, primarily due to higher revenue levels and net capital gains
on investment transactions in the first quarter of 2004.
12
Traditional Reinsurance
The U.S. traditional reinsurance sub-segment provides life reinsurance to
domestic clients for a variety of life products through yearly renewable term
agreements, coinsurance, and modified coinsurance arrangements. These
reinsurance arrangements may be either facultative or automatic agreements.
During the first quarter of 2004, this sub-segment added $44.2 billion face
amount of new business compared to $26.6 billion for the same period in 2003.
Total assumed in force, as measured by insurance face amount, totaled $922.4
billion, an increase of 63.7% over the total at March 31, 2003. The Allianz Life
transaction contributed 50.7% of the increase for the comparable periods.
Management believes life insurance industry consolidations and the trend towards
reinsuring mortality risks should continue to provide opportunities for growth,
although transactions the size of Allianz Life may or may not occur.
Income before income taxes for U.S. traditional reinsurance increased 61.0% in
the first quarter of 2004. This increase was driven by growth in net premiums,
including the Allianz transaction, and net realized investment gains of $7.6
million, somewhat offset by higher mortality experience during the first quarter
of 2004 compared to the first quarter of 2003.
Net premiums for U.S. traditional reinsurance increased 44.0% in the first
quarter of 2004, 32.1% of which related to the $118.5 million in net premiums
from the Allianz Life transaction. New premiums from facultative and automatic
treaties and renewal premiums on existing blocks of business also contributed to
growth.
Net investment income increased 26.6% in the first quarter of 2004. The increase
is due to growth in the invested asset base, primarily due to the Allianz Life
transaction, increased cash flows from operating activities on traditional
reinsurance, which was partially offset by lower yields, primarily as a result
of a general decline in interest rates.
Loss ratios (claims and other policy benefits divided by net premiums) were
81.1% and 79.6% in the first quarter of 2004 and 2003, respectively. The
increase in the loss ratio for the period is the result of somewhat higher
claims experience for the first quarter in 2004 compared to favorable claims
experience in the first quarter of 2003. Management believes death claims are
reasonably predictable over a period of many years, but are less predictable
over shorter periods and are subject to significant fluctuation.
Interest credited relates to amounts credited on the Company's cash value
products in this sub-segment, which have a significant mortality component. This
amount fluctuates with the changes in deposit levels, cash surrender values and
investment performance.
As a percentage of net premiums, policy acquisition costs and other insurance
expenses were 14.2% for the first quarter of 2004 compared to 13.8% for the same
period in 2003. These percentages are generally expected to fluctuate due to
variations in the mixture of business being written.
Other operating expenses, as a percentage of net premiums, were 2.2% for the
first quarter of 2004, compared to 2.3% for the same period in 2003. These
percentages are generally expected to fluctuate slightly from period to period,
but should remain fairly constant over the long term.
Asset-Intensive Reinsurance
The U.S. asset-intensive reinsurance sub-segment concentrates on the investment
risk within underlying annuities and corporate-owned life insurance policies.
Most of these agreements are coinsurance or modified coinsurance of
non-mortality risks such that the Company recognizes profit or losses primarily
from the spread between the investment earnings and interest credited on the
underlying deposit liabilities. Several of the coinsurance agreements are on a
funds withheld at interest basis.
Income before income taxes for the first quarter of 2004 was $3.5 million
compared to a loss of $82 thousand in the comparable prior-year period.
Contributing to the increase for the quarter was an increase in realized
investment gains of $3.0 million coupled with continued growth in the annuity
business somewhat offset by the change in the fair value of embedded derivatives
which resulted in a $2.7 million pre-tax loss for the current quarter. The
average asset base supporting this segment grew from $2.7 billion in the first
quarter of 2003 to $3.1 billion for the same quarter in 2004. The growth in the
asset base was primarily driven by new business written on two existing annuity
treaties. Invested assets outstanding as of March 31, 2004 and 2003 were $3.2
billion and $2.7 billion, of which $2.1 billion and $1.5 billion were funds
withheld at interest, respectively.
13
Total revenues, which are comprised primarily of investment income, increased to
$45.8 million in the first quarter of 2004 from $35.8 million for the comparable
prior-year period. This growth in revenue is primarily the result of the
increase in the average asset base for the comparable periods.
Total expenses, which are comprised primarily of interest credited, policy
benefits and acquisition costs increased to $42.3 million for first quarter in
2004 compared to $35.9 million in comparable prior-year period. The growth in
expenses can be attributed to the increase in interest credited, which is
generally offset by the increase in investment income, both of which are the
result of the growth in the asset base supporting this segment.
Financial Reinsurance
The U.S. financial reinsurance sub-segment includes net fees earned on financial
reinsurance agreements. Financial reinsurance agreements represent low risk
business that the Company assumes and generally subsequently retrocedes with a
net fee earned on the transaction. The fees earned from the assumption of
financial reinsurance contracts are reflected in other revenues, and the fees
paid to retrocessionaires are reflected in policy acquisition costs and other
insurance expenses.
Income before income taxes decreased to $2.7 million in the first quarter of
2004, from $2.9 million in the comparable prior-year period. The decline in
income can be attributed to a slight decrease in the net fee earned on the
financial reinsurance provided. At March 31, 2004 and 2003, financial
reinsurance outstanding, as measured by pre-tax statutory surplus, was $1.3
billion and $1.2 billion, respectively.
CANADA OPERATIONS
The Company conducts reinsurance business in Canada through RGA Life Reinsurance
Company of Canada ("RGA Canada"), a wholly-owned company. RGA Canada is a
leading life reinsurer in Canada, assisting clients with capital management
activity and mortality risk management, and is primarily engaged in traditional
individual life reinsurance, as well as non-guaranteed critical illness
products.
FOR THE THREE MONTHS ENDED MARCH 31 (IN THOUSANDS)
2004 2003
------------ ------------
REVENUES:
Net premiums $ 60,148 $ 48,586
Investment income, net of related expenses 23,980 19,766
Realized investment gains (losses), net 1,309 (263)
Other revenues 38 (65)
------------ ------------
Total revenues 85,475 68,024
BENEFITS AND EXPENSES:
Claims and other policy benefits 59,366 49,130
Interest credited 377 289
Policy acquisition costs and other insurance expenses 7,083 5,593
Other operating expenses 2,729 2,385
------------ ------------
Total benefits and expenses 69,555 57,397
Income before income taxes $ 15,920 $ 10,627
============ ============
Income before income taxes increased by $5.3 million or 49.8% in the first
quarter of 2004. The increase in 2004 was the result of an increase of $1.6
million in realized investment gains as well as better than expected mortality
experience in the current year. Additionally, a stronger Canadian dollar versus
the U.S. dollar contributed $1.6 million, or 10.1%, to income before income
taxes. Net premiums increased by $11.6 million or 23.8% in 2004. A stronger
Canadian dollar during 2004 contributed $7.6 million, or 12.6%, to net premiums
reported during 2004. Premium levels are significantly influenced by large
transactions, mix of business, and reporting practices of ceding companies and
therefore can fluctuate from period to period.
14
Net investment income increased 21.3% in 2004. Investment income is allocated to
the segments based upon average assets and related capital levels deemed
appropriate to support business volumes. Investment performance varies with the
composition of investments. In 2004, the increase was due to an increase in the
invested asset base and the strengthening of the foreign exchange rate, the
latter of which had an effect of $2.8 million, or 11.7%. The invested asset base
growth is due to operating cash flows on traditional reinsurance and interest on
an increasing amount of funds withheld at interest related to one treaty.
For the first quarter of 2004, the loss ratio was 98.7% compared to 101.1% in
2003. The decreased percentage for the current quarter is primarily the result
of better mortality experience compared to the prior-year quarter. Historical
loss ratios for this segment have exceeded 100% primarily as a result of several
large inforce blocks assumed in 1998 and 1997. These blocks are mature blocks of
level premium business in which mortality as a percentage of premiums is
expected to be higher than the historical ratios and increase over time. The
nature of level premium policies requires that the Company invest the amounts
received in excess of mortality costs to fund claims in the later years. Claims
and other policy benefits as a percentage of net premiums and investment income
were 70.6% for 2004 compared to 71.9% in 2003. Management believes death claims
are reasonably predictable over a period of many years, but are less predictable
over shorter periods and are subject to significant fluctuation.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums totaled 11.8% for 2004 compared to 11.5% in 2003. Policy acquisition
costs and other insurance expenses as a percentage of net premiums varies from
period to period primarily due to the mix of business in the segment.
EUROPE & SOUTH AFRICA OPERATIONS
This segment provides life reinsurance for a variety of products through yearly
renewable term and coinsurance agreements, and reinsurance of accelerated
critical illness coverage (pays on the earlier of death or diagnosis of a
pre-defined critical illness). Reinsurance agreements may be either facultative
or automatic agreements covering primarily individual risks and in some markets,
group risks.
FOR THE THREE MONTHS ENDED MARCH 31 (IN THOUSANDS)
2004 2003
------------ ------------
REVENUES:
Net premiums $ 117,203 $ 83,877
Investment income, net of related expenses 1,544 840
Realized investment gains, net 3,159 825
Other revenues 438 (176)
------------ ------------
Total revenues 122,344 85,366
BENEFITS AND EXPENSES:
Claims and other policy benefits 81,997 53,783
Policy acquisition costs and other insurance expenses 29,031 25,534
Other operating expenses 4,682 3,440
Interest expense 374 200
------------ ------------
Total benefits and expenses 116,084 82,957
Income before income taxes $ 6,260 $ 2,409
============ ============
Income before income taxes during the first quarter of 2004 compared to 2003
increased 159.9% from $2.4 million to $6.3 million, driven by a 39.7% growth in
premiums and a higher level of realized gains on investment transactions. In
addition, strengthening foreign currencies contributed $0.6 million to income
before income taxes for the first quarter over the same period in 2003.
The 39.7% growth in net premiums for the quarter was primarily due to new
business from existing treaties and from new treaties, combined with favorable
currency exchange rates. Several foreign currencies, particularly the British
pound, the euro, and the South African rand, strengthened against the U.S.
dollar in 2004 versus the same
15
period in 2003. The effect of the strengthening of the local currencies was an
increase in 2004 premiums of $17.4 million over 2003. Also, a portion of the
growth of premiums was due to reinsurance of accelerated critical illness. This
coverage provides a benefit in the event of a death from or the diagnosis of a
defined critical illness. Premiums associated with this coverage totaled $45.6
million for the three months ended March 31, 2004 compared with $38.6 million
for the same period in 2003. Premium levels are significantly influenced by
large transactions and reporting practices of ceding companies and therefore can
fluctuate from period to period.
Net investment income increased by $0.7 million in the first quarter of 2004 due
to growth in the investment assets in the UK and South Africa, growth in the
allocated invested asset base, and favorable exchange rates. Investment
performance varies with the composition of investments and the relative
allocation of capital to the operating segments.
Loss ratios were 70.0% and 64.1% in the first quarter of 2004 and 2003,
respectively. Death claims are reasonably predictable over a period of many
years, but are less predictable over shorter periods and are subject to
significant fluctuation.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums represented 24.8% and 30.4% in the first quarter of 2004 and 2003,
respectively. These percentages fluctuate due to variations in the mixture of
business being reinsured and the relative maturity of the business. In addition,
as the segment grows, renewal premiums, which have lower allowances than first
year premiums, represent a greater percentage of the total premiums.
Accordingly, the ratio of allowances to premiums declines.
Policy acquisition costs are capitalized and charged to expense in proportion to
premium revenue recognized. Acquisition costs, as a percentage of premiums,
associated with some treaties in the United Kingdom are typically higher than
those experienced in the Company's other segments. Future recoverability of the
capitalized policy acquisition costs on this business is primarily sensitive to
mortality and morbidity experience. If actual experience suggests higher
mortality and morbidity rates going forward than currently contemplated in
management's estimates, the Company may record a charge to income, due to a
reduction in deferred acquisition costs and, to the extent there are no
unamortized acquisition costs, an increase in future policy benefits.
Other operating expenses increased 36.1% in the first quarter of 2004. The
increase in other operating expenses is due to an increase in costs associated
with maintaining and supporting the significant increase in business over the
past year. As a percentage of premiums, other operating expenses decreased
slightly to 4.0% in the first quarter 2004 from 4.1% in the first quarter 2003.
The Company believes that sustained growth in premiums should lessen the burden
of start-up expenses and expansion costs over time.
16
ASIA PACIFIC OPERATIONS
The Asia Pacific segment writes business primarily in Australia, Hong Kong,
Japan, Malaysia, New Zealand, South Korea and Taiwan. The principal types of
reinsurance for this segment include life, critical care and illness, disability
income, superannuation, and financial reinsurance. Superannuation is the
Australian government mandated compulsory retirement savings program.
Superannuation funds accumulate retirement funds for employees, and in addition,
offer life and disability insurance coverage. Reinsurance agreements may be
either facultative or automatic agreements covering primarily individual risks
and in some markets, group risks. The Company operates multiple offices
throughout each region to best meet the needs of the local client companies.
FOR THE THREE MONTHS ENDED MARCH 31 (IN THOUSANDS)
2004 2003
------------ ------------
REVENUES:
Net premiums $ 103,539 $ 42,410
Investment income, net of related expenses 3,735 2,727
Realized investment gains (losses), net 347 (387)
Other revenues 635 200
------------ ------------
Total revenues 108,256 44,950
BENEFITS AND EXPENSES:
Claims and other policy benefits 74,845 27,264
Policy acquisition costs and other insurance expenses 21,530 11,522
Other operating expenses 4,742 4,527
Interest expense 342 269
------------ ------------
Total benefits and expenses 101,459 43,582
Income before income taxes $ 6,797 $ 1,368
============ ============
Income before income taxes during the first quarter of 2004 increased from $1.4
million to $6.8 million, driven by a 144.1% growth in net premiums from $42.4
million to $103.5 million. The percentage growth in net premiums in comparable
quarters is not indicative of the percentages we expect for the year ending
December 31, 2004. In addition to strong premium growth, strengthening foreign
currencies contributed $0.6 million to income before income taxes for the first
quarter of 2004.
The growth in net premiums for the quarter in the Asia Pacific segment was
generated by new business premiums from facultative and automatic treaties and
renewal premiums from existing treaties, including premiums associated with
accelerated critical illness coverage. The growth has also been aided by
favorable exchange rates, with several of the local currencies strengthening
significantly against the U.S. dollar. Stronger local currencies contributed
approximately $14.0 million, or 13.5%, to net premiums for the first quarter of
2004. Premiums earned during the first quarter associated with critical illness
coverage totaled $8.4 million compared to $2.6 million in the prior-year period.
Premium levels are significantly influenced by large transactions and reporting
practices of ceding companies and therefore may fluctuate from period to period.
Net investment income increased to $3.7 million in the first quarter of 2004 due
to an increase in allocated assets supporting the growth in the overall
business. Investment income and realized investment gains and losses are
allocated to the operating segments on the basis of capital required to support
underlying business and investment performance varies with the composition of
investments and the relative allocation of capital to units.
Loss ratios in Asia Pacific increased from 64.3% for the first quarter of 2003
to 72.3% for 2004. This ratio will fluctuate due to timing of client company
reporting, variations in the mixture of business being reinsured, and the
relative maturity of the business. Management believes death claims are
reasonably predictable over a period of many years, but are less predictable
over shorter periods and are subject to significant fluctuation.
Policy acquisition costs and other insurance expenses as a percentage of net
premiums were 20.8% in the first quarter of 2004 compared to 27.2% in the first
quarter of 2003. These percentages fluctuate due to the timing of client company
reporting and variations in the type of business being written, along with the
mix of new and renewal business.
17
Other operating expenses for the quarter declined from 10.7% of premiums in 2003
to 4.6% in 2004. If the segment continues to grow in terms of net premiums, as
expected, the burden of start-up expenses and expansion costs should be
alleviated in future periods. Interest expense increased in 2004 over 2003 due
to higher interest rates, an increase in debt levels in Australia to support the
growth in operations, and the effect of foreign exchange rates increasing
against the U.S. dollar over the prior year.
CORPORATE AND OTHER OPERATIONS
Corporate and Other revenues include investment income from invested assets not
allocated to support segment operations and undeployed proceeds from the
Company's capital raising efforts, in addition to unallocated realized capital
gains or losses. General corporate expenses consist of unallocated overhead and
executive costs and interest expense related to debt and the $225.0 million of
5.75% mandatorily redeemable trust preferred securities. Additionally, the
Corporate and Other operations segment includes results from RGA Technology
Partners ("RTP"), a wholly-owned subsidiary that develops and markets technology
solutions for the insurance industry, the Company's Argentine privatized pension
business, which is currently in run-off (see discussion of status below), and an
insignificant amount of direct insurance operations in Argentina.
FOR THE THREE MONTHS ENDED MARCH 31 (IN THOUSANDS)
2004 2003
------------ ------------
REVENUES:
Net premiums $ 591 $ 437
Investment income, net of related expenses 4,738 4,777
Realized investment gains (losses), net 5,899 (1,898)
Other revenues 1,355 1,087
------------ ------------
Total revenues 12,583 4,403
BENEFITS AND EXPENSES:
Claims and other policy benefits 976 (1,917)
Interest credited 69 47
Policy acquisition costs and other insurance expenses 54 579
Other operating expenses 7,071 4,393
Interest expense 8,822 8,490
------------ ------------
Total benefits and expenses 16,992 11,592
Loss before income taxes $ (4,409) $ (7,189)
============ ============
Loss before income taxes decreased 38.7% during the first quarter of 2004
primarily due to a $7.8 million increase in realized investment gains, offset in
part by a $2.9 million increase in claims and other policy benefits and a $2.7
million increase in other operating expenses. The increase in claims and other
policy benefits related to the Company's Argentine privatized pension business,
which reported negative claims and other policy benefits in the prior-year
period as a result of foreign currency gains on its Argentine peso business.
Other operating expenses increased primarily due to higher compensation related
expenses.
As discussed in the Company's Form 10-K for the period ending December 31, 2003,
certain regulations were pending relating to permanently disabled participants
of the privatized pension plans administered by Administradoras de Fondos de
Jubilaciones y Pensiones ("AFJPs"). Recently, the Argentine government enacted
those regulations. The new regulations require permanently disabled AFJP plan
participants to elect a programmed withdrawal or an annuity with respect to
deferred disability claims at a time when the AFJP fund unit values are
significantly inflated. The new regulations are expected to accelerate permanent
disability payments from reinsurers; particularly with respect to plan
participants that elect programmed withdrawal. The Company cannot predict the
percentage of plan participants that will elect programmed withdrawal as opposed
to an annuity. Also, as discussed in the Company's Form 10-K, the Company had
placed the Argentine Government on notice of its intent to file an arbitration
with respect to alleged violations of the Treaty on Encouragement and Reciprocal
Protection of Investments, between the Argentine Republic and the United States
of America, dated November 14,
18
1991 (the "Treaty"). On March 24, 2004, RGA Reinsurance filed a request for
arbitration of its dispute relating to these alleged violations pursuant to the
Washington Convention of 1965 on the Settlement of Investment Disputes under the
auspices of the International Centre for Settlement of Investment Disputes of
the World Bank.
DISCONTINUED OPERATIONS
The discontinued accident and health division reported a loss, net of taxes, of
$0.9 million for the first quarter of 2004 compared to a loss, net of taxes, of
$0.4 million for the first quarter of 2003. The calculation of the claim reserve
liability for the entire portfolio of accident and health business requires
management to make estimates and assumptions that affect the reported claim
reserve levels. Management must make estimates and assumptions based on
historical loss experience, changes in the nature of the business, anticipated
outcomes of claim disputes and claims for rescission, and projected future
premium run-off, all of which may affect the level of the claim reserve
liability. Due to the significant uncertainty associated with the run-off of
this business, net income in future periods could be affected positively or
negatively.
LIQUIDITY AND CAPITAL RESOURCES
The Holding Company
RGA is a holding company whose primary uses of liquidity include, but are not
limited to, the immediate capital needs of its operating companies associated
with the Company's primary businesses, dividends paid by RGA to its
shareholders, interest payments on its senior indebtedness and junior
subordinated notes (See Notes 15, "Long-Term Debt," and 16, "Issuance of Trust
Piers Units," in the 2003 Annual Report), and repurchases of RGA common stock
under a plan approved by the board of directors. In 2001, the Company's board of
directors approved a repurchase program authorizing RGA to purchase up to $50.0
million of its shares of stock. RGA purchased approximately 0.2 million shares
of treasury stock under the program at an aggregate cost of $6.6 million during
2002. The Company has not purchased any of its shares since 2002 and has no
plans to purchase additional shares at this time. The primary sources of RGA's
liquidity include proceeds from its capital raising efforts, interest income on
undeployed corporate investments, interest income received on surplus notes with
two operating subsidiaries, and dividends from operating subsidiaries. As the
Company continues its expansion efforts, RGA will continue to be dependent on
these sources of liquidity.
Cash Flows
The Company's net cash flows from operating activities for the periods ended
March 31, 2004 and 2003 were $375.8 million and $131.1 million, respectively.
Cash flows from operating activities are affected by the timing of premiums
received, claims paid, and working capital changes. The Company believes the
short-term cash requirements of its business operations will be sufficiently met
by the positive cash flows generated. Additionally, the Company maintains a high
quality fixed maturity portfolio with good liquidity characteristics. These
securities are available for sale and generally can be easily sold to meet the
Company's obligations, if necessary.
Net cash used in investing activities was $242.4 million and $204.6 million in
2004 and 2003, respectively. Changes in cash provided by investing activities
primarily relate to the management of the Company's investment portfolios and
the investment of excess capital generated by operating and financing
activities.
Net cash provided by financing activities was $37.0 million and $105.7 million
in 2004 and 2003, respectively. Changes in cash provided by financing activities
primarily relate to the issuance of equity or debt securities, borrowings or
payments under the Company's existing credit agreements, treasury stock
activity, and excess deposits or withdrawals under investment type contracts.
Debt and Preferred Securities
Certain of the Company's debt agreements contain financial covenant restrictions
related to, among others, liens, the issuance and disposition of stock of
restricted subsidiaries, minimum requirements of net worth ranging from $600
million to $700 million, and minimum rating requirements. A material ongoing
covenant default could require immediate payment of the amount due, including
principal, under the various agreements. Additionally, the Company's debt
agreements contain cross-default covenants, which would make outstanding
borrowings immediately payable in the event of a material uncured covenant
default under any of the agreements, including, but not limited to, non-payment
of indebtedness when due for amounts greater than $10 million or $25 million
19
depending on the agreement, bankruptcy proceedings, and any event which results
in the acceleration of the maturity of indebtedness. As of March 31, 2004, the
Company had $404.1 million in outstanding borrowings under its debt agreements
and was in compliance with all covenants under those agreements.
The Company's U.S. credit facility expires in May 2006 and has a total capacity
of $175.0 million. The Company generally may not pay dividends under the credit
agreement unless, at the time of declaration and payment, a default would not
exist under the agreement. As of March 31, 2004, the Company had $50.0 million
outstanding under this facility and the average interest rate on all long-term
debt outstanding, excluding the Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely junior subordinated
debentures of the Company ("Trust Preferred Securities"), was 6.06%. Interest is
expensed on the face amount, or $225.0 million, of the Trust Preferred
Securities at a rate of 5.75%.
Statutory Dividend Limitations
The ability of the Company to make principal and interest payments depends
primarily on the earnings and surplus of its subsidiaries, investment earnings
on undeployed capital proceeds, and the Company's ability to raise additional
funds. At March 31, 2004, Reinsurance Company of Missouri, Incorporated ("RCM")
and RGA Canada had statutory capital and surplus of $819.2 million and $237.4
million, respectively. RCM's primary asset is its investment in RGA Reinsurance
Company, the Company's principal operating subsidiary based in Missouri. The
transfer of funds from the subsidiaries to RGA is subject to applicable
insurance laws and regulations. The Company expects any future increases in
liquidity needs due to treaty recaptures, relatively large policy loans or
unanticipated material claims levels would be met first by operating cash flows
and then by selling fixed-income securities or short-term investments.
Future Liquidity and Capital Needs
During the first quarter of 2004, RGA Reinsurance Company became a member of the
Federal Home Loan Bank of Des Moines ("FHLB"). One of the benefits of being a
member is the ability to borrow money on short notice by pledging investments.
As of March 31, 2004, the Company had no outstanding borrowing from or assets
pledged to the FHLB. Based on the historic cash flows and the current financial
results of the Company, subject to any dividend limitations which may be imposed
by various insurance regulations, management believes RGA's cash flows from
operating activities, together with undeployed proceeds from its capital raising
efforts, including interest and investment income on those proceeds, interest
income received on surplus notes with two operating subsidiaries, and its
ability to raise funds in the capital markets, will be sufficient to enable RGA
to make dividend payments to its shareholders, to make interest payments on its
senior indebtedness and junior subordinated notes, to repurchase RGA common
stock under the plan approved by the board of directors, and to meet its other
obligations.
A general economic downturn or a downturn in the equity and other capital
markets could adversely affect the market for many annuity and life insurance
products. Because the Company obtains substantially all of its revenues through
reinsurance arrangements that cover a portfolio of life insurance products, as
well as annuities, its business would be harmed if the market for annuities or
life insurance were adversely affected.
INVESTMENTS
The Company had total cash and invested assets of $9.6 billion and $7.2 billion
at March 31, 2004 and 2003, respectively. All investments made by RGA and its
subsidiaries conform to the qualitative and quantitative limits prescribed by
the applicable jurisdiction's insurance laws and regulations. In addition, the
Boards of Directors of the various operating companies periodically review the
investment portfolios of their respective subsidiaries. The RGA Board of
Directors also receives reports on material investment portfolios. The Company's
investment strategy is to maintain a predominantly investment-grade, fixed
maturity portfolio, to provide adequate liquidity for expected reinsurance
obligations, and to maximize total return through prudent asset management. The
Company's earned yield on invested assets, excluding funds withheld, was 5.83%
through March 31, 2004, compared with 6.67% through March 31, 2003. See "Note 5
- - INVESTMENTS" in the Notes to Consolidated Financial Statements of the 2003
Annual Report for additional information regarding the Company's investments.
The Company's fixed maturity securities are invested primarily in commercial and
industrial bonds, public utilities, U.S. and Canadian government securities, as
well as mortgage and asset-backed securities. As of March 31, 2004,
20
approximately 98.0% of the Company's consolidated investment portfolio of fixed
maturity securities was investment-grade. Important factors in the selection of
investments include diversification, quality, yield, total rate of return
potential, and call protection. The relative importance of these factors is
determined by market conditions and the underlying product or portfolio
characteristics. Cash equivalents are invested in high-grade money market
instruments. The largest asset class in which fixed maturities were invested was
in corporate securities, including commercial, industrial, finance and utility
bonds, which represented approximately 60.4% and 59.1% of fixed maturity
securities as of March 31, 2004 and 2003, respectively. These corporate
securities had an average Standard and Poor's ("S&P") rating of A+ at March 31,
2004.
Within the fixed maturity security portfolio, the Company holds approximately
$75.4 million in asset-backed securities at March 31, 2004, which include credit
card and automobile receivables, home equity loans and collateralized bond
obligations. The Company's asset-backed securities are diversified by issuer and
contain both floating and fixed rate securities. In addition to the risks
associated with floating rate securities, principal risks in holding
asset-backed securities are structural, credit and capital market risks.
Structural risks include the securities priority in the issuer's capital
structure, the adequacy of and ability to realize proceeds from collateral, and
the potential for prepayments. Credit risks include consumer or corporate
credits such as credit card holders, equipment lessees, and corporate obligors.
Capital market risks include general level of interest rates and the liquidity
for these securities in the marketplace.
The Company monitors its fixed maturity securities to determine impairments in
value. In conjunction with its external investment managers, the Company
evaluates factors such as financial condition of the issuer, payment
performance, the length of time and the extent to which the market value has
been below amortized cost, compliance with covenants, general market conditions
and industry sector, intent and ability to hold securities, and various other
subjective factors. Based on management's judgment, securities with an
other-than-temporary impairment in value are written down to fair value. The
Company recorded other-than-temporary write-downs of $0.1 million and $8.8
million during the first quarter of 2004 and 2003, respectively. The
circumstances that gave rise to these impairments were bankruptcy proceedings
and deterioration in collateral value supporting certain asset-backed
securities. During 2004, the Company sold fixed maturity securities with a fair
value of $18.2 million at a net loss of $0.3 million.
The following table presents the total gross unrealized losses for 216 fixed
maturity securities where the estimated fair value had declined and remained
below amortized cost by the indicated amount (in thousands):
At March 31, 2004
-------------------------------
Gross Unrealized
Losses % of Total
---------------- ----------
Less than 20% $ 9,177 100%
20% or more for less than six months - -%
20% or more for six months or greater - -%
---------------- ----------
Total $ 9,177 100%
While all of these securities are monitored for potential impairment, the
Company's experience indicates that the first two categories do not present as
great a risk of impairment, and often, fair values recover over time. These
securities have generally been adversely affected by overall economic
conditions.
21
All gross unrealized losses have been outstanding less than 12 months. The
following table presents the fair value and total gross unrealized losses for
216 fixed maturity securities as of March 31, 2004, by class of security, and
broken out between investment and non-investment grade investments (in
thousands):
Gross
Unrealized
Fair Value Losses
------------ ------------
Investment grade securities:
Commercial and industrial $ 179,659 $ 3,930
Public utilities 48,481 1,106
Asset-backed securities 7,422 226
Canadian and Canadian provincial governments 17,475 736
Mortgage-backed securities 11,309 195
Finance 54,811 1,393
U.S. government and agencies 46,462 313
Foreign governments 89,169 1,187
------------ ------------
Investment grade securities $ 454,788 $ 9,086
============ ============
Gross
Unrealized
Fair Value Losses
------------ ------------
Non-investment grade securities:
Commercial and industrial $ 153 $ 1
Asset-backed securities 900 90
------------ ------------
Non-investment grade securities 1,053 91
------------ ------------
Total $ 455,841 $ 9,177
============ ============
The Company believes that the analysis of each security whose price has been
below market for greater than twelve months indicated that the financial
strength, liquidity, leverage, future outlook and/or recent management actions
support the view that the security was not other-than-temporarily impaired as of
March 31, 2004. Additionally, 99.0% of the gross unrealized losses are
associated with investment grade securities.
The Company's mortgage loan portfolio consists principally of investments in
U.S.-based commercial offices and retail locations. The mortgage loan portfolio
is diversified by geographic region and property type. Substantially all
mortgage loans are performing and no valuation allowance has been established as
of March 31, 2004.
Policy loans present no credit risk because the amount of the loan cannot exceed
the obligation due the ceding company upon the death of the insured or surrender
of the underlying policy. The provisions of the treaties in force and the
underlying policies determine the policy loan interest rates. Because policy
loans represent premature distributions of policy liabilities, they have the
effect of reducing future disintermediation risk. In addition, the Company earns
a spread between the interest rate earned on policy loans and the interest rate
credited to corresponding liabilities.
Funds withheld at interest comprised approximately 30.6% of the Company's
investments as of March 31, 2004 and December 31, 2003. For agreements written
on a modified coinsurance basis and certain agreements written on a coinsurance
basis, assets equal to the net statutory reserves are withheld and legally owned
and managed by the ceding company, and are reflected as funds withheld at
interest on RGA's balance sheet. In the event of a ceding company's insolvency,
RGA would need to assert a claim on the assets supporting its reserve
liabilities. However, the risk of loss to RGA is mitigated by its ability to
offset amounts it owes the ceding company for claims or allowances with amounts
owed to RGA from the ceding company. Interest accrues to these assets at rates
defined by the treaty terms. The Company is subject to the investment
performance on the withheld assets, although it does not directly control them.
These assets are primarily fixed maturity investment securities and pose risks
similar to the fixed maturity securities the Company owns. To mitigate this
risk, the Company helps set the investment guidelines followed by the ceding
company and monitors compliance. Ceding companies with funds withheld at
interest had a minimum A.M. Best rating of "A".
22
COUNTERPARTY RISK
In the normal course of business, the Company seeks to limit its exposure to
reinsurance contracts by ceding a portion of the reinsurance to other insurance
companies or reinsurers. Should a counterparty not be able to fulfill its
obligation to the Company under a reinsurance agreement, the impact could be
material to the Company's financial condition and results of operations.
MARKET RISK
Market risk is the risk of loss that may occur when fluctuations in interest and
currency exchange rates and equity and commodity prices change the value of a
financial instrument. Both derivative and nonderivative financial instruments
have market risk so the Company's risk management extends beyond derivatives to
encompass all financial instruments held that are sensitive to market risk. RGA
is primarily exposed to interest rate risk and foreign currency risk.
Interest Rate Risk arises from many of the Company's primary activities, as the
Company invests substantial funds in interest-sensitive assets and also has
certain interest-sensitive contract liabilities. The Company manages interest
rate risk and credit risk to maximize the return on the Company's capital
effectively and to preserve the value created by its business operations. As
such, certain management monitoring processes are designed to minimize the
impact of sudden and sustained changes in interest rates on fair value, cash
flows, and net interest income.
The Company is subject to foreign currency translation, transaction, and net
income exposure. The Company generally does not hedge the foreign currency
translation exposure related to its investment in foreign subsidiaries as it
views these investments to be long-term. Translation differences resulting from
translating foreign subsidiary balances to U.S. dollars are reflected in equity.
The Company generally does not hedge the foreign currency exposure of its
subsidiaries transacting business in currencies other than their functional
currency (transaction exposure).
There has been no significant change in the Company's quantitative or
qualitative aspects of market risk during the quarter ended March 31, 2004 from
that disclosed in the 2003 Annual Report.
NEW ACCOUNTING STANDARDS
In July 2003, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts." SOP
03-1 provides guidance on separate account presentation and valuation, the
accounting for sales inducements and the classification and valuation of
long-duration contract liabilities. The Company adopted the provisions of SOP
03-1 on January 1, 2004, recording a charge of $361 thousand, net of income
taxes.
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"),
an interpretation of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," which requires the consolidation by a business enterprise
of variable interest entities if the business enterprise is the primary
beneficiary. FIN 46 was effective January 31, 2003, for the Company with respect
to interests in variable interest entities obtained after that date. With
respect to interests in variable interest entities existing prior to February 1,
2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), which
extended the effective date of FIN 46 to the period ending March 31, 2004. The
Company adopted the provisions of FIN 46 as of March 31, 2004 and is not
required to consolidate any material interests in variable interest entities.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including,
among others, statements relating to projections of the earnings, revenues,
income or loss, future financial performance and growth potential of Reinsurance
Group of America, Incorporated and its subsidiaries (referred to in the
following paragraphs as "we," "us" or "our"). The words "intend," "expect,"
"project," "estimate," "predict," "anticipate," "should," "believe," and other
similar expressions also are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results, performance and achievements could differ materially from those set
forth in, contemplated by or underlying the forward-looking statements.
23
Numerous important factors could cause actual results and events to differ
materially from those expressed or implied by forward-looking statements
including, without limitation, (1) adverse changes in mortality, morbidity or
claims experience, (2) changes in our financial strength and credit ratings or
those of MetLife, Inc. ("MetLife"), the beneficial owner of a majority of our
common shares, or its subsidiaries, and the effect of such changes on our future
results of operations and financial condition, (3) general economic conditions
affecting the demand for insurance and reinsurance in our current and planned
markets, (4) market or economic conditions that adversely affect our ability to
make timely sales of investment securities, (5) changes in investment portfolio
yields due to interest rate or credit quality changes, (6) fluctuations in U.S.
or foreign currency exchange rates, interest rates, or securities and real
estate markets, (7) adverse litigation or arbitration results, (8) the stability
of governments and economies in the markets in which we operate, (9) competitive
factors and competitors' responses to our initiatives, (10) the success of our
clients, (11) successful execution of our entry into new markets, (12)
successful development and introduction of new products, (13) our ability to
successfully integrate and operate reinsurance business that we acquire,
including without limitation, the traditional life reinsurance business of
Allianz Life, (14) regulatory action that may be taken by state Departments of
Insurance with respect to us, MetLife, or its subsidiaries, (15) changes in
laws, regulations, and accounting standards applicable to us, our subsidiaries,
or our business, and (16) other risks and uncertainties described in this
document and in our other filings with the Securities and Exchange Commission
("SEC").
Forward-looking statements should be evaluated together with the many risks and
uncertainties that affect our business, including those mentioned in this
document and the cautionary statements described in the periodic reports we file
with the SEC. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date on which they are
made. We do not undertake any obligations to update these forward-looking
statements, even though our situation may change in the future. We qualify all
of our forward-looking statements by these cautionary statements. For a
discussion of these risks and uncertainties that could cause actual results to
differ materially from those contained in the forward-looking statements, you
are advised to consult the sections named "Risk Factors" and "Cautionary
Statement Regarding Forward-Looking Statements" contained in our Registration
Statement on Form S-3, as amended, filed with the SEC on August 25, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk" which is incorporated by reference herein.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management, including the
Chief Executive Officer and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures with respect to the information generated for use in this
Quarterly Report. Based upon, and as of the date of that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the disclosure
controls and procedures were effective to provide reasonable assurance that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 are recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.
There was no change in the Company's internal control over financial reporting
during the quarter ended March 31, 2004, that has materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.
24
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The Company is currently a party to various litigation and arbitrations that
involve medical reinsurance arrangements, personal accident business, and
aviation bodily injury carve-out business. As of March 31, 2004, the ceding
companies involved in these disputes have raised claims, or established reserves
that may result in claims, that are $96.1 million in excess of the amounts held
in reserve by the Company. The Company generally has little information
regarding any reserves established by the ceding companies, and it is possible
that any such reserves could be increased in the future. The Company believes it
has substantial defenses upon which to contest these claims, including but not
limited to misrepresentation and breach of contract by direct and indirect
ceding companies. In addition, the Company is in the process of auditing ceding
companies that have indicated that they anticipate asserting claims in the
future against the Company that are $8.4 million in excess of the amounts held
in reserve by the Company. Depending upon the audit findings in these cases,
they could result in litigation or arbitrations in the future. See Note 21,
"Discontinued Operations," in the Company's 2003 Annual Report for more
information. Additionally, from time to time, the Company is subject to
litigation and arbitration related to its life reinsurance business and to
employment-related matters in the normal course of its business. While it is not
feasible to predict or determine the ultimate outcome of the pending litigation
or arbitrations or provide reasonable ranges of potential losses, it is the
opinion of management, after consultation with counsel, that their outcomes,
after consideration of the provisions made in the Company's consolidated
financial statements, would not have a material adverse effect on its
consolidated financial position.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) See index to exhibits.
(b) The following report on Form 8-K was filed with the Securities and
Exchange Commission during the quarter ended March 31, 2004:
On January 29, 2004, the Company filed a Current Report on Form 8-K
furnishing under Items 9 and 12 a press release discussing results of
operations for the three months ended December 31, 2003. The press release
was attached thereto as Exhibit 99.1.
25
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 May 7, 2004
--------------------------------------
A. Greig Woodring
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Jack B. Lay May 7, 2004
--------------------------------------
Jack B. Lay
Executive Vice President & Chief Financial
Officer
(Principal Financial and Accounting
Officer)
26
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- ----------------------------------------------------------------------
2.1 Master Agreement by and between Allianz Life Insurance of North America
and RGA Reinsurance Company, incorporated by reference to Exhibit 2.1 to
Current Report on Form 8-K filed on October 9, 2003 (file no. 1-11848).
2.2 Life Coinsurance Retrocession Agreement by and between Allianz Life
Insurance of North America and RGA Reinsurance Company, incorporated by
reference to Exhibit 2.2 to Current Report on Form 8-K filed on October 9,
2003 (file no. 1-11848).
3.1 Second Restated Articles of Incorporation, incorporated by reference to
Exhibit 3.1 of Post-Effective Amendment No. 2 to the Registration
Statements on Form S-3/A (File Nos. 333-55304, 333-55304-01 and
333-55304-02), filed on September 6, 2001.
3.2 Bylaws of RGA, as amended, incorporated by reference to Exhibit 3.2 to
Form 10-Q for the quarter ended September 30, 2000 (No. 1-11848), filed on
November 13, 2000.
31.1 Certification of Chief Executive Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
27