美國再保險集團 (RGA) 2004 Q2 法說會逐字稿

Good day, everyone, and welcome to the Reinsurance Group of America second quarter conference call.

Today's call is being recorded.

At this time, I would like to introduce the President and Chief Executive Officer, Mr. Greig Woodring; and Executive Vice President and Chief Financial Officer, Mr. Jack Lay.

Mr. Lay, please go ahead.

Okay.

Thank you.

Good morning and welcome to RGA's second quarter 2004 conference call.

I'll turn the call over to our CEO, Greig Woodring in just a moment.

David Atkinson, our Chief Operating Officer is also here this morning for the call.

Greig will comment on our results and then we'll respond to any questions from the participants on this call.

As a reminder, during this call we plan to make certain statements and discuss certain subjects that will contain forward-looking information, including among other things, statements related to projections of revenue and earnings, and future financial performance and growth potential of RGA and its subsidiaries.

You're cautioned that actual results could differ materially from expected results.

A list of important factors that could cause actual results to differ materially from expected results is included in the earnings release we issued yesterday.

In addition, during the course of the call, we'll make certain comments about our results based upon operating income on both a pre-tax and after-tax basis.

Under SEC regulations, operating income is considered a non-GAAP financial measure.

We believe this measure better reflects the ongoing profitability and underlying trend of our continuing operations.

Please refer to the tables in our press release for more information on this measure and reconciliations of operating income to net income for our various business segments.

With that, I'll turn it over to Greig for his comments for the second quarter.

Good morning.

Thank you for joining us.

I'll make some brief comments about our results and then I'll open a line for questions.

We enjoyed another good quarter from both a top-line growth and an earnings standpoint.

First on a consolidated basis, operating income for the quarter totaled 57.2 million, 39% above the second quarter 2003 total of 41.2 million.

On a per-share basis our reported operating income for the quarter was 91 cents per diluted share.

This represents an 11% increase over the prior-year results of 82 cents per diluted share.

Similarly to the first quarter, we know that the comparison with the second quarter would be difficult for a couple of reasons.

Very strong second quarter in 2003 which featured favorable mortality in the U.S., and our sizeable equity offering late in 2003 with over 12 million new shares issued, raising more than $425 million in growth capital for the enterprise, much of which remains to be deployed.

Reporting net income for the quarter -- reported net income for the quarter totaled $65.3 million or $1.04 per diluted share, 22% increase on a per-share basis over the prior year amounts.

Current year net income includes $12.7 million in net realized capital gains, including over $8 million in foreign currency gains as we continue to restructure and diversify our Canadian portfolios.

Realizing some of the recent Canadian dollar currency gains in the process.

Net premiums were strong, up 37%, including the Allianz block, but also 16% organically excluding Allianz.

Continued strong growth in our international locations also contributed to the premium growth.

Turning to our operating segments individually, first in the U.S., pre-tax operating income totaled $68.4 million compared with 55.7 last year, up 23%.

Similarly to the first quarter, the number of large claims that is greater than $1 million were a little bit above average.

While we had somewhat worse than expected overall claims for the U.S., the variation was less than 1/2 of a quarterly standard deviation statistically, in other words, second quarter like the first quarter is more of a waffle than a strong departure from expected.

We saw the opposite in our comparing to a very strong first quarter, our second quarter last year with fewer than expected large claims.

These fluctuations do tend, of course, to even out over time.

Even with our large spread of risk, we have continued to see quarterly volatility.

U.S. market continues to exhibit favorable conditions.

Competitive dynamics and overall capacity within the industry continue to trend favorably for us right now, with fewer competitors and higher pricing levels.

As a reminder, though, any favorable impact of this pricing environment affects results only gradually over time.

Our asset-intensive business in the U.S. contributed $5.7 million pre-tax in operating earnings with no new transactions during the quarter, but the investment-asset base is about $400 million above the second quarter last year.

We added a little over $100 million of assets during the quarter.

Total investments at 6/30/04 are about $3.3 billion.

Our U.S. management team continues to transition the Allianz block to our system.

That transition has so far gone smoothly, remains on schedule.

Which would have us essentially complete by year end.

Turning now to Canada, the Canadian operation had a strong quarter.

Pre-tax operating income totaled $14.3 million compared to 9.6 million in the prior period quarter, up 49% on a U.S. dollar basis.

The impact of currency was not terribly significant, less than $0.5 million.

Mortality was favorable as was the case in the first quarter.

As with negative fluctuations, we expect that this will even out over time.

Premium flow in Canada was good, up 15% in Canadian dollars and up 19% in for our reported numbers in U.S. dollars.

New business opportunities in Canada are also good.

Canadian market benefits from some of the similar dynamics that we see in the U.S. marketplace.

Regarding our international operations, profit continues to grow at a good clip.

Pre-tax operating income, $15.5 million versus $8.5 million last year.

Claims were high last year in the second quarter.

Volatility certainly can be expected in these smaller operations as they grow to maturity.

Usually the case, mortality results vary by location, and this quarter U.K. results were particularly strong.

Foreign currency translation added about 1.3 million to pre-tax earnings internationally.

Premiums continue to surge internationally, up about 24% when you factor out currency strength, or up 36% in reported U.S. dollar terms.

We continue to be optimistic about our international growth opportunities as we continue to penetrate the markets that we have launched into.

Our overall yield on the investment portfolio for the quarter, excluding funds withheld was generally flat compared to the first quarter.

We continue to look for improved yield opportunities, but without altering our risk tolerance.

We continue to manage portfolios in a way so that we avoid particular concentrations or large interest rate debts.

On the A&H front, our discontinued business settled a small arbitration.

This was a primary driver for the larger than usual $3 million loss for the quarter.

We still have a few arbitrations left, but expect the most significant one to get underway later this year and most of them to be resolved in relatively short period of times now, just within a couple of years perhaps.

Turning to other corporate matters, earlier this month we filed a universal shelf registration statement for general corporate purposes, helped restore capacity and flexibility we lost when we issued common stock late in 2003.

Once effective, total capacity will be $1 billion versus our current capacity of approximately 357 million.

We have no immediate plans, however, to issue any securities.

So in conclusion, we're pleased with the strong results for the second quarter.

There are positive factors in the life reinsurance market which continue along, primarily as relates to strong demand, fewer competitors and very favorable pricing conditions.

For a long time now, we've maintained a disciplined and consistent approach to the life reinsurance market.

At various points in time this has let us not take on certain risks some of other competitors did, and required us to sit on the sidelines when pricing became too competitive in certain parts of the market sacrificing market share and top-line growth, however, those days seem to be behind us.

Over the long haul, we believe our approach has led to a much stronger position and more consistent results than some of our competitors.

We believe our clients value our consistency, dependability and strength since life reinsurance treaties represents long-term commitment, this is very important to us.

This commitment works best when it's mutually beneficial and fair to both parties.

We remain optimistic about our growth opportunities.

And with that, I would like to open for any questions you may have.

Thank you, sir.

The question-and-answer session will be conducted electronically.

If you'd like to ask a question, please signal us by pressing star 1 now.

Again, please stress star 1 if you do have a question.

We'll turn to Jeff Hopson with A.G. Edwards.

Good morning.

A couple of questions.

One, have you seen any response by clients to the higher rate environment in terms of what they may do with retention ratios, et cetera?

And then, two, on the international business, would you say that profits are coming through in line with expectations or are the profits higher, lower, et cetera?

Jeff, first of all, the reactions of the clients, there have been a little bit, but not too much actually.

There's a lot of, I think, thinking and planning about what to do next.

A lot of intentions perhaps to reevaluate reinsurance programs with the idea perhaps to raise retention or to retain more business.

But we don't see a lot of it happening.

We see some of it happening.

And we do expect that companies will retain more business and reinsure less, but not significantly more.

And the fact that there are fewer reinsurers around probably means that the overall business flow to companies like RGA will continue to rise very nicely.

In terms of international, this year we're maybe a little bit ahead of expectations, but not unusually so.

Pretty much on our pricing expectations and achieving the results that we expect.

It does, of course, vary from quarter-to-quarter and place-to-place.

Asia Pacific had a very good first quarter, a less than expected second quarter, and reversed that for Europe and South Africa segments.

So overall we're probably on or a little bit ahead of expectations.

And in terms of capacity in international markets, how would that -- is that the same situation there as in the U.S. capacity and/or competition?

Each of the markets has its own competitive characteristics.

In some of the markets, there are -- there are a lot of competition and still very heated fights for business.

In other markets, business is not competitively bid for in the same way, but service or special characteristics of the reinsurance ideas and so forth, will be things that swing reinsurance one way or another.

Okay.

Thank you.

Now we'll turn to Eric Wizowski with FTN Midwest Research.

Thanks and good morning.

I actually had a question regarding the mortally experience in the U.S. this past quarter.

Was the higher than expected number of large claims related to facultative or automatic business?

One in specific.

When we see extra large claims it's usually facultative and I think that was the case in the second quarter.

The facultative average size tends to be quite a bit higher than the automatic average size, so you get more volatility in the facultative book.

Generally speaking, our facultative book over long periods of time has performed extremely well.

And has it performed better or in line with the automatic business?

Probably better relative to its pricing.

Okay.

And then was the frequency in line with expectations this past quarter?

Yes.

Yes.

Okay.

Thank you.

And again please signal us by pressing star 1 if you do have a question today.

And Mr. Lay and Mr. Woodring, it appears there are no further questions.

Okay.

This is Jack.

To the extent any other questions come up, we would certainly be willing to field those here in St. Louis.

I think everybody has our number.

And with that, we will close the conference call.

Thank you for your support.

I think that ends the call.

Thank you for your participation.

You may now disconnect.