美國再保險集團 (RGA) 2003 Q1 法說會逐字稿

Good day and welcome to the Reinsurance Group of America first quarter conference call.

Today's call is being recorded.

At this time I would like to introduce Mr. Greig Woodring, Executive Vice President, Mr. Jack Lay.

Go ahead Mr. Lay.

Thank you.

Good morning.

Welcome to everyone to our first quarter 2003 conference call.

Greig Woodring our CEO and David Atkinson our Chief Operating Officer are here this morning for the call.

Greig will comment on our results and then we'll respond to any questions.

As a reminder, we plan to discuss certain subjects that will contain forward looking information including expected financial performance, future transactions and industry trends.

You are cautioned that actual results could differ materially from expected results.

Additional detailed information concerning a number of factors that could cause these actual results to differ materially from expected results is readily available in our most recent annual report for the year-ending December 31,2002.

With that I'll turn it over to Greig for comments.

Good morning.

Thank you for joining us.

I am pleased once again to report strong results for RGA.

Operating earnings on a consolidated basis from continuing operations for the quarter total 38.9 million, 20% above the first quarter of 2002, total of 32.4.

On a per share basis, our reported operated earnings from continuing operations were 78 cents per diluted share, 20 increase over the prior year result which was 65 cents per share.

Under the scc's new regulation operating income from continuing operations is considered a nongap financial measure.

We believe this measure reflects our ongoing profitability and we will continue to focus on this measure as we comment on our result.

In accordance with the new sec requirements, we will make sure we are very clear in terms of how we operate, from continuing operations to net income including discontinued operations.

Please refer to the text of our press release for the reconciliation of the period we discuss today.

Net income including discontinued operations for the quarter totaled $32.7 million or 66 cents per share, an 18% increase over the prior year account.

Consolidated net premiums increased 16% for the quarter, that's within our range of expectations.

Terms of our individual operating segments starting with the U.S. operations, our largest segment, pretax operating earnings were 50.2 million compared to 40.4 million for the prior year, a 24% increase.

The comparable gap measure of pretax income total 42.6 million, for the current quarter and included 7.6 million pretax and net capital losss and related deferred acquisition costs.

Prior quarters pretax income totaled 38.5 million including 1.9 million from capital losses and related deferred acquisition costs.

Very strong results were driven by our largest sub segment, the traditional mortality business, sometimes we call it our core business.

We experienced favorable mortality that contributed approximately 4 million pretax in additional earnings compared p expectations.

Mortality results fluctuate from quarter to quarter.

Premiums increased 6% from the prior year quarter.

This rate is somewhat lower than our annual expectation which is approximately 10% or better and it is also below our recent history.

We have had good business activity and are not really concerned about that particular number at this time.

U.S. asset intensive business, under performed in the quarter due to credit losses in the underling portfolio and adverse experiences on one of our bolly block.

We expect we'll get back on track.

U.S. reinsurance market place continues to offers excellent opportunities.

Turning to Canada next, the Canadian operation had a good quarter.

Pretax operating income increased 22%, 10.9 million from 8.9 million in the prior quarter.

These totals include about $300,000 in net losses in 2003 and $100,000 in 2002.

Overall mortality was slightly better than expectations.

Driving the results.

Premiums increase had 4% to $49 million.

Regarding international operations we saw mixed results with the quarter with strong top line growth and higher than expected benefit levels.

Premiums increased 72% to $126.3 million.

Pre-tax operating income was $3.3 million and pre-tax income was $3.7 million, the difference is $400,000 in capital gains.

Pre-tax operating income was still up about 43% over the prior year.

We view claims, fluctuations to be normal for new operations of this size.

As we indicated in our press release, the operation that's formerly made up the Latin America sub seingment have been restructured with part of those operations now reporting to the U.S. segment management and the remaining piece primarily this is discontinuing Argentine pension business reflected in corp preted and other segment.

We added a financial table to the press release for the results for the corporate and other segment.

Net capital losses for the quarter total had 9.8 million on a pre-tax basis.

The losses were dominated on several asset back securities and the several distrust corporate securities.

It totaled 8.8 million.

Losses on sales, 12.4 million in gains on sales, 11.4 million.

Our gain and loss activity is associated with our fixed security portfolio.

Overall yield on the portfolio rose to 6.67%.

In conclusion, we are pleased with the results for the first quarter and with positive momentum for the remainder of the year we provided full year earnings guidance in January of 295 to 315 a share in operating earnings, and we believe that range of expected earnings is still appropriate.

We will now be happy to take any questions you may have.

Thank you gentlemen.

The question and answer session will be conducted electronically today.

If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on the phone.

If you are using a speaker phone, make sure your mute button is off.

We will proceed in on you you signal us and will take as many questions as time permits.

Press star 1 to ask a question.

We'll pause to assemble a roster.

And we will take our first question today from Tanya Lewandowski with AG Edwards.

Hi.

Good morning.

Good morning, Tonya.

Just wanted to get a little more color from you on the asset intensive business.

I guess more detail on what you're really seeing there.

Obviously, you know, with the first quarter we saw the spread compression.

Do you expect that to be kind of a struggle throughout the rest of 2003 and then maybe looking further ahead toward 2004 and beyond that that will start to look a little better?

In the first quarter on that block of business, what you think as traditional spreads on each of the -- on each of the deals we have either met or exceeded our price index expectations.

We had credit loss in the portfolio that flowed through and we don't really know if there's going to be more of those, but we are in the same environment everybody else is and are watching that carefully.

That somewhat impacted the results of that unit for the quarter but in the long run we think those are isolated events and that the spread discipline we have, it's been pretty well maintained.

Okay.

And I'll touch a little bit on the premium growth in the U.S..

Understandable that there are some time issues sometimes and some lumpiess.

Would you characterize it as the pipeline being strong now and more or less timing related that the first quarter was a little weaker?

That's a good way to put it.

The pipeline is very strong and the business activity is quite robust.

And we do have reporting affects when companies report blocks of business.

Comparing one quarter to another quarter is always hard.

It smooths out over time.

Last year our growth rate was over 14% in the U.S. premium segment and we should be more like that in the run rate.

Okay.

And then just lastly, of course, SARS has gotten a lot of publicity lately and you do have some business in the Asia Pacific region and also in Canada.

We're seeing a lot of press on Toronto being hit pretty hard.

Do you have any thoughts on where things stand with SARS?

Is it a major concern at this point?

I guess, what are your thoughts on SARS?

Well, we have no SARS claims to date.

And we are obviously watching the situation very carefully.

The SARS epidemic and the number of deaths would have to get bigger by several orders of magnitude before it becomes a significant affect on rga's results.

But it is something we will watch carefully as it unfolds over the next few months.

Our thought obviously is that the spread becomes contained.

Okay.

Great.

Thank you.

And our next question today will be from Bill Procter representing McKenzie Financial.

Good morning.

Good morning.

I had two questions.

I'm phoning from Toronto by the way and I don't have SARS so if that is any consolation to everybody.

The first question is to do with the change in unrealized gains or losses during the quarter.

I know you tell us what the realized gains or losses, on the portfolio, but can you tell us if there is a change in unrealized?

This is Jack.

Let me comment on that and we'll have further information in our 10 q when we file it.

In terms of gross gains and losses, we're at about 218 million.

We will report about 218 million in gross, unrealized gains and about 74 million in gross unrealized losses.

Okay.

And the second question is given -- given what appears to be fairly strong volume growth, do you consider being more aggressive on pricing as opposed to just adding volume, and the problem being that as you add volume you add financial additions you have to make.

Could the strategy be more aggressive on pricing as continued to continuing for more aggressive on volumes?

We are in a market now where we have continued strong demand for reinsurance and fewer competitors.

That is restricted supply.

And that's an environment we are seeing in certain pockets and in certain situations, price moving upward.

We're taking of advantage of that when the situation permits.

We see that in certain markets more strongly than in others and in certain pockets of the markets more strongly than others.

But the general trend is that pricing environment is better today than for a while. .

To us we are familiar with doing that.

And there are strong reasons for the direct companies to want to do that.

I won't go into all the reasons.

They may vary somewhat.

But there are a couple beneficial affects of doing that.

That they can achieve.

And so, we expect there will be some demand for that.

Are you saying small increase in activity on this type of business, which characterizes a long increase in quote activity?

Well, it started from zero.

There was none of this sort of business six months ago and then we started to develop some.

And, you know, there is a little bit of a flow now.

Okay.

So I expect all the major writers will consider it and many of them will do something of this nature.

That's helpful.

Thank you.

And at this time Mr. Lay and Mr. Woodring I'm showing there are no further questions or comments.

I would like to return the conference to you for any additional or closing remarks.

Okay this is Jack lay.

I want to thank everybody for joining us this morning and as usual to defend any issues or questions come up, feel free to give us a call, and we'll try to respond to the best of our ability.

Thank you for going us this morning.

This concludes the Reinsurance Group of America first quarter conference call.

We thank you for your participation and I hope everyone has a wonderful afternoon.